“All firms must be able to show consistently that fair treatment of customers is at the heart of their business model.” ~ Financial Conduct Authority
The author of this piece is Rory Yates, who has more than 24 years of business leadership experience spanning client, agency, consultancy, start-up, and private equity roles. As EIS’ head of strategy for EMEA and APA, Rory helps insurers achieve their transformation goals and evolve toward ecosystem-based futures via insurance core systems transformation, including truly personalised engagement, taking innovation from concept to market quickly, and growing efficiently.
The simple truth is regulatory changes such as General Insurance Pricing Practices (GIPP) and the Fairness Duty shouldn’t be as hard hitting as they will be. It’s simply asking insurers to make pricing, product, cover and experiences more fair as well as make better provision for vulnerable customers. It shouldn’t be a tough ask but it will be, especially when it comes to insurers delivering informed, timely communications through digital channels.
That’s why, with the October deadline for implementation plans looming, I’d like to reiterate why insurers should treat these regulatory changes as an opportunity and not merely an obligation.
Pricing hikes at renewal have served only to create more distrust in an industry that often suffers the lowest trust levels of any sector. Inertia around compliance has the potential to harm both consumers as well as the industry if insurers don’t comply.
GIPP levels the playing field. Pricing fairness and transparency works against the commodification of insurance, offers an opportunity to dig into the opportunities that lie underneath this reactive struggle, and creates a value frame and potentially a new era for competition. But, any potential gains that could have been made with the consumer have been thwarted by insurers competing in aggregator channels.
The same mistake must not be made with the new Fairness Duty, which makes provision for six key outcomes and the goals of making the cover clear, communication clear, and creating a more competitive market:
● Outcome 1: Consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.
● Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
● Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
● Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
● Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
● Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim, or make a complaint.
Opportunities for insurers that embrace this change
The market is boiling with new entrants – neo-carriers, micro-insurers, on-demand coverage, mobile-only carriers – giving consumers the choice, speed, and simplicity consumers demand. With the looming insuretech threat, and over 1,500 of them in the market, competition is fierce.
Embracing The Fairness Duty gives incumbent insurers an opportunity to stop the frantic focus on price and begin strategizing to address these required outcomes. The opportunities for insurers that take this time to rethink their go-to-market strategies could be massive, including:
Fair pricing (GIPP):
● Greater profitability led by increases in retention
● Escape from the vicious cycle of customer churn
● A rejection of lower-margin customer base with escalating marketing costs
● Increased margins and reach based on value-added services, partnerships, and positive customer experiences
● New value propositions based on risk mitigation, cross and up sell, multicover benefits, and inter-related service provisions and partnerships
● Increased trust and engagement with insureds
Consumer duty:
● End rip-off charges and fees
● Make it as easy to switch or cancel products as it was to take them out in the first place
● Provide helpful and accessible customer support, not making people wait so long for an
answer that they give up
● Provide timely and clear information that people can understand about products and
services so consumers can make good financial decisions, rather than burying key
information in lengthy terms and conditions that few have the time to read
● Provide products and services that are right for their customers
● Focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
The costs of meeting the regulation head on
With the regulatory and competitive landscapes changing structurally, “short-termism” and sticking plasters may allow insurers to survive. But they will do so without the profit to justify the future technology investments needed to compete differently in a changing insurance landscape.
But to compete differently, ambitious insurers need a new technology foundation to match their strategic intentions, one that helps them make changes quickly and deliver effective and balanced pricing / product strategies while creating value through new customer experiences. With their rigid architecture and policy-centric data structures, most modern legacy systems can only aspire to such agility.
More sophisticated customer expectations also mean industry incumbents also need to offer different distribution, and product and services propositions. In short, insurers need to enter the digital ecosystem era.
In line with these, ecosystem-enabling platforms provide insurers with:
● The ability to reach new customers
● Gather pertinent data from them
● Offer streamlined data-driven purchase and service opportunities
● The opportunity to bundle, upsell and cross sell where and when customers are ready to buy
● Access to relevant third-party data streams and product/data processing
● Scalability in a secure digital infrastructure
Enabled by strategic technology partnerships while driving loyalty and retention, a new era of insurance will emerge – and just in time. Most insurance organizations are accelerating and expanding their use of software and cloud technologies to establish their competitive edge and transform interactions with customers, employees, and partners, all while focusing on the greater goals of insurance: enabling economies, helping people and businesses avoid or manage risk, and recover from losses.
While these regulations are undoubtedly currently top of mind for insurers, it’s just the most recent market force acting on an industry long stifled by complexity, technology debt, and huge levels of unstructured data.
Insurers have long held the need to provide risk-removing services, embed insurance offerings, adapt to meet needs, and personalize experiences as well as deliver the human centric benefits of insurance to more people.
There’s much work to be done to manage complexity and drive transformation success through new technologies. Perhaps this new duty is merely a way of enforcing a change that has long been needed and desired within the industry.
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