Laura Benton, COO of Reassured takes a look at the implications of the FCA ruling on fair pricing, loyalty and customer relationships.
I hope that my counterparts in the general insurance sector will forgive a life insurance specialist writing about issues affecting their part of the market. But I believe that there are changes coming in the GI world which may end up bringing the general insurance market and the protection world a little closer together, and that may be a development which ends up benefiting both.
In May of this year the FCA announced the implementation of far-reaching legislation planned for January 2022. Its ‘package of remedies’ aims to improve competition within the insurance market and seeks to protect home and motor insurance customers who don’t shop around annually for the best deals. The regulator estimates that over the course of ten years these measures will save consumers a collective total of £4.2 billion by making it a requirement that new customers are not given preferential treatment from insurers through discounted policies.
This is a big deal. ‘Shopping around’ for the best deal is a practice familiar to both consumer and insurer, with 77% of customers reported to actively engage with a range of insurers to find the best deal suited to their requirements. As such, the insurance business model has historically existed on the premise that cheaper initial deals will attract new customers to its services.
The FCA’s new measures represent a fundamental shift in how general insurers can operate. Some insurers are likely concerned that the pace at which the new rules are being introduced doesn’t leave them enough time to adjust processes and policies. Revenue streams, new business plans and customer loyalty schemes will need to be reviewed in order meet the challenges presented by these changes. Most importantly, how will insurers attract new customers when a key reason to switch providers has been removed?
Out with the new, in with the old
It seems certain that customer relationships will become stickier once the new rules apply from January, meaning a focus on brand loyalty should be a priority for insurers. Value for money is certain to get customers through the door, but retention will be built on customer service, digital services and claims experiences.
Many experts predict a rise in new businesses prices for home and motor cover as businesses adapt to their changed circumstances. The FCA expects that the market will be fairer and more efficient, while recognising the possibility that some customers will face higher prices because of the changes.
According to the FCA, ‘price-sensitive consumers, including young customers’ might ultimately pay more for their home and motor insurance in the future than they do currently. In this new age of insurance – where customer retention is prized over all else – insurers need to offer the right deal to those customers that the insurer really wants to acquire from the start, so as to protect market share and retain business levels.
Consumers stick with brands because they trust them. They trust the initial purchase price of that given product comes with it a level of service unmatched by competitors. In the same way, building trust with customers will become a strategic priority for insurers because of the FCA’s changes.
While that process takes place, we expect insurers to also focus on lines of business which are not covered within the rule changes – such as protection.
The power of partnerships
In a period of intense uncertainty for home and motor insurance, insurers will want to maximise the opportunities their other offerings which are unaffected by the new rules. A report released by Canada Life in June found that the pandemic had prompted around 5.8 million adults to buy, or consider buying, life insurance. As families continue to recognise the importance of financial resilience in the face of crisis, protection will take centre stage. It’s a trend we’ve also seen at Reassured; 2020 was a record year for us in terms of new business, and we saw a large increase in customers searching for life insurance online.
Distribution partners provide the opportunity for insurers to expand revenue streams, protect profits and access new channels to market. Working with an established, well respected life insurance broker can be a key plank of an insurer’s protection distribution strategy, giving customers more choice as they plan for their futures. I believe that this is an exciting opportunity for the life and GI sides of the sector to come closer together once more, to share best practice and to ensure that a multi-business lines, multi-channel distribution strategy is adopted to drive best customer outcomes and to ensure insurers can still grow and build profitable businesses.