With all the changes that are going on both within the wider political and economic world and the regulatory and governance world, 2021 is set to be the Year of the Consumer for insurers.
I am using this word in its exact sense because the focus for insurers needs to turn towards consumers, the end insured. It is with them that the year will either succeed or fail. It would be easy to fall into the trap of calling it “the year of the customer” but that would indicate that anyone that pays an insurer money is the focus. That would include people in the vendor channel who are paying “commissions” or driving revenues.
It is not about them. It is about car drivers, homeowners, pet owners, travellers, people who have dreams, people with lives to lead. They have been put in charge, I want to call them out because it is the singularity of focus on value creation for consumers that insurers should be thinking about 2021, it is through them that survival lies.
So, what are the key consumer drivers for the year? Loyalty and retention, vulnerability, value, engagement, confidence and trust.
Loyalty and Retention: The directive from the FCA that renewal and new business pricing will need to be brought in line has sent a shockwave through the industry.
The more recent rumblings we have heard ahead of its final policy statement, that they may still allow introductory discounts and perhaps even some weird incentive payments that still favour new customers over loyal customers, entirely miss the point that consumers are making. They WANT to be loyal. It is not consumers that invented shopping and switching, it is the industry. The utter fixation that the general insurance has on new business over old is not only counter-intuitive it is destroying trust. Remember, insurance is a contract of trust and so insurers should want to build trust, not destroy it.
Vulnerability: In April 2020 the number of people who self-identified “as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care” doubled (13% to 26%) in the space of two weeks. The real number is likely to be even higher. Covid made us all susceptible and the latest lockdown will do so again. Only this time hundreds of thousands have already lost their jobs and experienced sustained levels of stress and anxiety.
In 2020 we saw some companies carrying out overt campaigns around Covid including Admiral, Direct Line and LV=. But vulnerability is broader than that, it’s different for different types of customers, and it will be here long after whichever lockdown we’re about to be in.
In 2021 this is likely to also be a year where claims inflation rises, economic downturn always causes claims to rise. 2021 will be no different.
Value: Aligning what is valuable for consumers with what is valuable for insurers is not always easy. Remember PPI? Look again at the definition of vulnerable customers and read the last bit: “appropriate levels of care”. In the motor industry the FCA recently regulated against discretionary commission models, which effectively rewarded car dealers to sell more expensive credit to customers. Why is the treatment of add-ons and instalment income commissions in insurance any different? Where value is in insurance, where profit is made and what “value” means to the FCA (as a proxy for consumers) will be more broadly regulated in 2021. So, understanding value and being able to attest to “appropriate levels of care” goes from interesting to critical.
Flexibility may also carry a greater weight for consumers. As people are in and out of lockdown, their driving patterns change, and so does work and living. Usage-based challengers have made much of this, and Direct Line’s refund scheme taps into the theme that people whose risks reduce should pay less. The value of an annual policy, based on a predicted number of miles, may be waning.
Engagement: This links to loyalty because our work shows that engaging consumers creates loyalty and renewal. It is also one of the areas that will increasingly be important to understand as the regulator forces insurers to allow customers to cancel online. In recent times insurers have used call centres to improve engagement but also to act as a barrier to cancellation. Having to call and cancel gave a window to drive retention. Now that cancellations must be delivered online true engagement is likely to be a higher priority. That’s good news – remember, more engaged consumers are more loyal. Engagement is good, get good at it.
Confidence and Trust: We talk about it here as one thing but consumer trust and confidence in insurers has been dented, which means there is an opportunity, building a product that inspires trust and confidence. Some brands have worked hard on this, look at Bought By Many as an example, NFU Mutual as another. There are many but, again, the outcome of confidence and trust is a virtuous accretion of value to both insurer and consumer. No greater example exists than Admiral’s giving of £25 to customers in 2020. The resultant uplift in trust and loyalty was extraordinary.
In short 2021 is the Year of Consumer in either the direct guise or indirect (via the regulator), driving long term consumer value is where it is going to be.
What is odd, for me, is that I am even having to write this. The insurance industry has got so used to looking inside itself, looking at its own data, its own analytics, its own underwriting results, its own investors, its own bonuses that it has forgotten the reason why it exists. To catch people when they fall, to give the reassurance that I can live my dreams, to quote from American Family insurance’s TV campaign “insure carefully, dream fearlessly”. In 2021 helping people dream fearlessly and live their most valuable lives will be the key to surviving and growing, no matter what else happens.
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