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Man and woman shaking hands in a meeting – Photo by rawpixel.com

The Chartered Insurance Institute (CII) has launched a Public Trust Index that provides the industry with much needed insight into key measures of consumers’ confidence. In order to improve customers’ satisfaction, insurers require a better understanding of the opinions of insurance buyers.

The survey comprised of in-depth interviews with industry regulators and public bodies, in addition to consumers and SMEs (Small Medium Enterprises), supports the industry shift from a structural focus on the premiums to developing customer relationships through value and trust.

Accordingly, confidence in insurers was the leading priority whereas premiums were a low priority. Confidence in insurers is followed by easy buying process (70%) and good protection from the insurance product (68%).

The Index has also revealed gaps in areas of importance to consumers and their perception of industry performance in these areas. The performance gap is largest for rewarding customer loyalty at 13% followed by an easy buying process and good protection from the insurance product with 7% gap, respectively.

The industry challenge is to improve trust by closing these gaps between consumers’ expectations and industry performance. The biggest hurdle is addressing the lack of perceived loyalty. The large performance gap reflects consumer discontent with the practice of insurers charging new customers lower prices but raising the renewal price for existing customers, known as dual pricing.

Dual pricing under the spotlight

Under the current controversial practice of dual pricing, customers pay a higher price in return for loyalty to insurance providers. Since new customers are offered more attractive pricing to sign up for new insurance products, long-term customers pay more for their insurance – in effect, subsidizing the discounted pricing.

This pricing regime sends faulty market signals by penalizing insurance buyers in the form of higher prices for long-term customer loyalty.

If competition is working well in a market, it should not overly disadvantage existing customers over new customers,” states the Financial Conduct Authority (FCA) Business Plan 2018/2019, which has made tackling dual pricing a priority.

Since April 2017, the FCA has sought to ensure fairer pricing by requiring insurers to list the previous year’s premium alongside renewal offers.

While consumers are lowering their premiums by shopping around, prices are still far from being equalized. Consumers can get better pricing by taking their insurance business elsewhere.

In the second year of a home insurance policy with the same insurance provider, a consumer can save £45 on a home insurance policy by switching providers, according to Consumer Intelligence. In the ninth year, the savings jumps to £124.

Broker relationship matters most

Small and medium businesses value, before all, the broker advisor relationship. As with consumers, however, this trust has been breached by the practice of employing dual pricing.

The prospect of subsidizing the insurance of competitors is an even more contentious issue in the business insurance market. To the contrary, SMEs seeking to reduce business expenses expect insurers to offer a higher value proposition through loyalty discounts, for example, as well as policy extras and no claims bonuses.

Furthermore, small businesses value protection at reasonable costs, claims processing facilitated with ease and speed, and complaints handled efficiently.

Overall, the survey found that the claims process boosted confidence for insurers. Most consumers reported satisfaction with a claims process that was handled quickly (74%), respectfully (70%) and with the control of the policyholder in the process (68%).

Policyholders’ loyalty, however, can easily be betrayed on a technicality. Such was the anguishing case of a homeowner who lost his five-bedroom house in a fire as recounted by James Daley upon receiving the CII Consumer Champion Award.

In his speech, Daley tells how the insurance company rejected the homeowner’s claim when his house burnt down. “The house had 5 bedrooms – and 2 attic rooms which had not been completed according to buildings regulations. When the house burned down, the insurer told the customer that his house had 7, not 5 bedrooms, and because they didn’t cover 7 bedroom properties, they wouldn’t pay a penny of his claim. Worse still, the Ombudsman agreed.”

Social media has become a critically important channel for customer service and feedback. A bad insurance claim story like this can go viral and can jeopardize the insurer and the whole industry’s reputation.

One way for the insurance industry to address its reputational issues, concludes the report, is to step up to the challenge of becoming partners in risk management with its customers. As a provider of risk management solutions beyond insurance, the industry will be incentivized to create more value for customers through innovative risk management products.

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