While industry often views regulation as onerous and a burden, Consumer Duty is the opposite. Given the correct focus, it could and should trigger the transformational tipping point desperately needed in insurance.
With consumer trust scores at rock bottom, mandating the provision of easy-to-understand, relevant products and services that are constantly reviewed, tweaked and tailored as people’s lives inevitably change, as the Consumer Duty guidance does, it provides the perfect framework for forming more meaningful relationships with consumers.
As an immediate example, on 4th July, the FCA warned home and motor insurers to improve their treatment of vulnerable customers and claims handling after finding multiple instances of ”poor practice” among general insurance (GI) firms. This was after the publication of the FCA’s Cost of Living: good and poor practice in the general insurance market review on the 3rd of July.
Insurers are at a Severe Disadvantage
However, to benefit from the Consumer Duty opportunity, insurers must be able to ingest and mine vast sets of customer data and act on it in real time. But, despite massive investment, genuinely agile business models have yet to be realised. As a consequence, insurers remain largely product-centric.
The sector’s prior reluctance to embrace new ways of working and ecosystem-enabling technologies has put them at a severe disadvantage. Insurers simply lack the toolkit and business model to adapt effectively. Making real change highly complex and expensive.
Forget regulation for a moment. Look at the lack of data integration into garage networks, smart devices, weather systems, or new reinsurance services. They all provide a huge opportunity to create better customer outcomes by quickly adapt to changing environments. But mostly, they are an opportunity missed.
As a result, low trust and a drive to get the “best price” dominate many retail insurance markets. This stems from transactional relationships built around low-touch products. The result is a sense that the only purpose is to pay out if a risk is realized and a belief from consumers that the insurer’s business is engineered to do the opposite. Dire industry trust scores, especially for claims, bear this out.
Even relatively simple changes like ensuring people understand their policy can be made richer using digital capabilities, but insurers struggle to respond.
An inability to ingest and act on customer data is perhaps the fundamental reason for the sector’s continued inability to understand and interpret regulation and build it into a working model for the business. Especially in the processes surrounding change.
What’s needed is an understanding and acceptance that insurance must be built like the ecosystem businesses we see in other markets. Not just because consumers demand it but because of the incredible commercial upsides that await the insurer with the ambition to truly transform.
We are at a Tipping Point
Outside of insurance, we’ve reached the tipping point of proliferating ecosystem business models. To optimise commercial opportunities, insurers must integrate with a much wider world, embedding insurance and adapting to massive changes in the macro and natural environment. That means exchanging data and integrating it with a proliferation of distribution opportunities.
We’ve seen what’s possible in fintech, which has had great success in providing a holistic view of people’s money, helping them see its worth in the context of their lives and then facilitating more value from that awareness.
Smart money services like CoGo and Plum are prime examples of businesses that understand the commercial value of equipping consumers with valuable insights about their spending habits and demonstrating how they can generate more value by optimising them with new habits. This is resulting in mutually beneficial commercial partnerships with consumers built on broad product offerings.
Who Will Win?
To differentiate and form lasting relationships with people, insurers must offer the same. The first step will be to embrace this new wave of regulation and use it as the catalyst to drive towards developing more meaningful value propositions and experiences. Propositions and experiences that are more integrated, risk-reducing, and flexible, with far more meaning placed on how they can be valuable to a customer.
In this future, claims are seamless through integrations into other data sources. Renewals and pricing are clearer, with the once-annual moment of renewal coming in a series of consistent touch-points that create a better sense of ‘my insurer is by my side’.
The ecosystem and its partners are ready for insurers. Electronic First Notification of Loss (eFNOL) services like Rightindem, risk-reducing providers like Leakbot, and fraud solutions capable of high levels of detection. There’s a proliferation of climate data sources like Earth Knowledge and its predictive capacity around environmental change and Flood Re’s Build back better service. The motor industry has never been so data-rich.
Creating the intelligence needed to be more adaptive has never been easier. Insurers should consider their ecosystem models and how they sit inside this mass of partnership potential built around the customer and made intelligent through various AI-related technologies. There’s a real opportunity right now to make insurance better.
When we get there, people will easily perceive their risk profile. They’ll be able to make comparisons, understand protection gaps and determine the implications of life changes. This dearth of insight can only benefit insurers who own the relationship with their customers.
For the insurer, it will be paradigm-changing. Their businesses won’t depend on premiumisation. They’ll have the means to remain in markets that right now look too risky. The industry can return to its original thesis of driving societal momentum through shared risk.
It’s Only Just Begun
The current spate of change that insurers must adapt to is only the start. More significant and complex change is coming. Insurers must provide full and transparent audibility and, soon enough, real-time audibility, where the industry must “prove” customers were offered every chance to understand the product and services they purchased.
This new regulatory landscape will ensure a fair and competitive market that produces sustainable and value-generative businesses. Regulators don’t always get everything right, but ultimately the outcomes are hugely beneficial. Consumer Duty is the right guidance at the right time. The question is, which insurers will be able to leverage its potential?
Last week, Insurtech Insights ran a webinar with EIS on the Consumer Duty guidance. The expert panel explored how insurers can capitalise on the next wave of regulation and what the global insurance community can learn from the trajectory of the UK regulatory landscape.
You can view the recording here.
About Rory Yates
Rory has more than 25 years of business leadership experience spanning client, agency, consultancy, start-up, and private equity roles. As EIS’ SVP of Global Corporate Strategy, 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.
