Why Consumers’ Personal Finances Will Change The General Insurance Industry Forever

The FCA’s Financial Lives Survey, published in October 2017, deserves to be on Board agendas throughout the insurance sector. One of its headline findings was that more than half the UK’s adults show one or more characteristics of potentially vulnerability. That’s 25.6 million people. Of those, some 4.1 million people have failed to pay bills in three or more of the last six months. 

The Regulator explains that someone with “potential vulnerability” means a consumer who “may be at increased risk of harm, or would suffer disproportionately, if harm occurred.” Not everyone in this category is or will suffer harm, but the number remains staggeringly high.

The report carried on landing some other heavyweight insights including:

• 41% of UK adults aged 18-24 are deemed to be “surviving”
• Just over 12 million people do not think they have enough information to decide, on quality, between different insurance policies

These insights into the struggles experienced by large sections of society aren’t surprising when an ONS report on housing affordability in England and Wales found that “full-time workers could expect to pay around 7.8 times their annual workplace-based earnings on purchasing a home in England and Wales in 2017, a significant increase of 2.4% since 2016.” The English Housing Survey also found that the number of households renting privately has risen by 74% in the past 10 years (2006 to 2016/17).

Eye opening statistics but why should these reports be essential reading for general insurance Boards? The FCA report contains some worrying missed opportunities for insurance brands — for example only 19% of renters aged 25-34 have home contents insurance. Over three quarters of renters in that age bracket do not have home contents insurance — what an opportunity!

Insurance on tap

However, when the statistics are connected with other trends being observed in the general insurance industry, the potential impact could be even greater than just a missed opportunity. Leigh Calton, who leads Consumer Intelligence’s horizon scanning practice, says: “Our horizon scanning service is observing an increasing number of insurtech start-up businesses creating on demand insurance products. These types of products where consumers can cover the possessions that matter the most to them, when they want, for as long as they want are likely to appeal to consumers who feel traditional policies with annual premiums cover and cost too much.”

So could the squeeze on a consumer’s personal finance act as a catalyst for the adoption of on demand products within insurance? Calton suggests: “Insurance is entering a perfect storm for some significant structural changes. Not only are we observing large segments of the population making decisions solely on price, we are also now seeing alternative products, such as on demand, give consumers more choice. On top of this the growth in artificial intelligence will make it easier for consumers to activate/deactivate cover as their circumstances change. For some consumers this could even be on a daily basis.”

Generation share

There is also a link to be made to the sharing economy as consumers may look to generate an income from their property and possessions, for example people renting out their house on Airbnb for a fortnight to offset their holiday costs. And for consumers for whom money is very tight and who are comfortable hiring things when they need them rather than buying and owning will need to insure the item for the short period of rental. Either way, the need consumers have to look after their finances is creating insurance opportunities for both those with assets and those without.

Clearly not all consumers will want on demand insurance and for many the existing ‘always on’ policy with comprehensive cover is ideal. However, the 25.6 million people referred to in the FCA financial lives survey cannot be considered a small segment. When Calton’s perfect storm of ‘consumer volume, product need and technology capability’ come together the potential for long term change in the market is clear. As Calton concludes: “Structural changes aren’t observed overnight, but the insurance market is changing. The insurance brands that recognise this by joining the dots and then making strategic moves to ensure long term success are already active in understanding how insurance might change over the next five years.”

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