By the very principles of the premiums of the many paying for the losses of the few, insurance has long had a bit of an image problem in the public consciousness. “See the small print” is not something anyone who bought insurance to cover a risk wants to hear if they do make a claim, and the insurance sector has come under intense scrutiny over the course of the pandemic for exactly this kind of thing.
The issue of ‘fair value’ has already been applied in other financial services areas, such as investment and banking. The UK Financial Services Authority (FCA) has made this a key mandate for the insurance industry too, which appears still to have some way to go to catch up.
OK, you are onboard. You know you’ve got to do this, as it’s good for business and for customers (not to mention the regulator). But where should you, as an insurer or MGA, be looking principally, to ensure and transparently demonstrate that your products offer fair value?
There is no one area or one simple solution, but we would encourage you to focus on the following areas;
The manner in which the product is delivered from the insurer to the customer is an essential part of the value chain. The key question here is – is the distribution chain offering value to the customer? Are all parties involved offering value – to the customer?
Technology will inevitably play an ever-increasing important part in the delivery of insurance products and electronic delivery of a product, with the ancillary savings in cost to the end customer, will always be seen as a positive step toward a product providing fair value.
However, the more traditional method of intermediated business will still have its place, but this is very much with the proviso that the intermediaries involved add to the value and not take away.
Do you know if the intermediaries distributing your product add value? More importantly, can you demonstrate this to be the case, for instance by use of data or other feedback loops? A first step is knowing exactly what commissions and fees are added to the premium the customer pays and whether these are still appropriate in a customer-centric world. Are these commissions/fees actually incentivising good customer outcomes?
As a purchaser of any product, the overall price you pay needs to represent value. In any area, it is entirely appropriate to compare the product price to other similar offerings, to ensure you are getting the best deal. Insurance is no different to any product in this respect.
Do you know how your products compare price-wise with other equivalent products available in the market?
However, as a ‘promise to pay’, it is important for customers to see what other aspects of the insurance product need to be considered, in addition to the pure price. Claims paying ability, after sales service, level of advice provided, reputation and security of the carrier are all important aspects of the overall package price.
That is why the provision of information on the product becomes so important. Are your customers fully aware of the benefits?
The more relevant information that a customer gets about the product they are seeking to purchase the better. It stands to reason that they will be better informed of the benefits and, consequently, the value of the product they are purchasing.
Make sure that customers have all the relevant information they need in order to make an informed decision on the benefits of the product you are offering.
Service and deliverables
There is no point in providing a fairly priced product if it does not actually operate when it needs to.
You need to ensure that the product (or ancillary service) responds in the way envisioned by the purchasing party, at the time of purchase. You need to know (not hope) that your product works.
Customer outcomes need to be measurable. If the insurance product does not work as envisioned, then you will inevitably be in the FCA’s sights, as shown during the Covid Pandemic.
Use of MI data, feedback avenues and external independent product reviews can all be usefully used to ensure the product is operating properly, as envisaged by all parties.
This is simple. Is your culture to make as much money for your shareholders or is it to ensure (in a profitable manner, of course) that your customers get appropriate products for their needs, at fair prices and which respond when needed?
A positive culture needs to be embedded and demonstrable.
Ultimately, this will bring the right balance of customer satisfaction, regulatory compliance and business development. Individual Conduct Rules under the Senior Managers & Certification Regime (SMCR) make this a personal responsibility for Board and senior members of staff.
Product value is not just about price; it means the overall benefit that customers receive from buying a product or service, relative to the total cost that they incur.
If you address all the above issues properly, then not only will the chances of falling into the FCA bottom sector of offenders when the time comes be low, but more importantly you will be demonstrating your customer focus as a business, and your commitment to providing ‘fair value’ across the insurance chain. And this can only be positive for the public perception of insurance, for your reputation as a business, and for the industry as a whole.
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