Modern Insurance Magazine Issue 62

FEATURES
CONSUMER INTELLIGENCE
October/November 2023 Issue No 62
Avoiding
Consumer
Harm in the
Consumer
Duty Age
When the FCA first
proposed the new
Consumer Duty back
in July 2021, little
did we know that
the UK would soon
be hit by a cost-ofliving
crisis. When
the implementation
finally arrived two
years later, the need
for strengthened
consumer protection
couldn’t have felt
more palpable; 69% of
consumers reported
that they had been
impacted by the crisis,
and 66% said that they
are worried about
being unable to afford
their bills.
Record-breaking premium
inflation, delays in pay outs, and
increased fraud activity are driving a
breakdown in trust between insurers
and consumers. The industry is
standing on a precipice; one where
it needs to embrace the spirit of the
Consumer Duty in order to survive.
Unfortunately, Ian Hughes, CEO
at Consumer Intelligence, says the
reception from the market has been
mixed. “Some firms have jumped
on it,” Ian says, “while others really
haven’t understood it. Given the
amount of signposting, it does seem
surprising that there has been so
much ‘nothing to see here’ from so
many companies”.
Ian continues, “I expect to see the
impact of this mentality pan out in
the market – whether insurers are
asked to review historic claims or
asked to review their fee structure.
All of these are sign posts for what
the Consumer Duty means”.
Intensifying consumer
expectations
The world we once knew, one
where savvy customers shopped
around for new business discounts,
is starting to seem like a distant
memory. Today’s customer doesn’t
have that luxury. In reality, they’re
facing significant increases in
renewal premium, with little relief
offered from shopping around.
Consumer Intelligence data shows
new business insurance premiums
inflating by 61% in motor and 27%
in home in the twelve months to
August.
Alongside increased costs
comes an increase in consumer
expectations. Hughes says, “If you
were suddenly asked to pay 50%
more for your favourite dish at
your local restaurant, you’d expect
an improvement in quality or
service. The same applies to any
consumable, including insurance”.
“Our research shows that consumer
expectations are currently not being
met consistently - particularly
during the claims process when
it comes to speed and efficiency.
If delays in pay outs continue,
consumer satisfaction will
continue to fall, leading to further
complaints and potential regulatory
consequences”.
The potential for
consumer harm
With costs rising on all sides, more
customers are shopping around
at renewal, making them more
susceptible to unfair practices which
artificially lower premiums.
Customer understanding of general
insurance products is lower than
many firms may realise, and lower
still as a result of the proliferation
of tiered products – those which
typically strip out cover and raise
excesses.
In a survey of 1056 people conducted
in February, Consumer Intelligence
found that knowledge about cover
levels and excess fees varied widely.
More than 1 in 5 of those with
insurance had no idea what level
of motor (22%) or home (21%) cover
they’d purchased – top, standard,
or basic.
When asked in more detail about
the level of cover they had, as many
as 46% of car insurance customers
had no idea how much excess they’d
agreed to pay in the event of a
claim, rising to nearly 60% of home
customers.
Hughes comments, “We’ve seen
an explosion of product tiers
following the General Insurance
Pricing Practices (GIPP) reforms,
with brands bringing out bronze/
silver/gold versions to serve different
consumer budgets, and to gain an
advantage on the Price Comparison
Websites”.
“The FCA has been about as clear
as it can be on the subject of Fair
Value. They have also been clear
about what they are planning
with anti-avoidance. Having tiered
products is not necessarily a
problem, however it does become
one when tiers result in individual
products within a package failing
to offer fair value, or where tiered
products are being used as a way to
avoid Consumer Duty principles,
achieving pricing outcomes to the
detriment of consumers.”
“The biggest worry has to be if
consumers are lured into buying
sub-standard products out of
necessity, which means that they
end up not having the right cover.
This will cause reputational
damage for the industry and
could lead to long term harm and
vulnerability for consumers.”
Time to understand
your performance
Considering current challenges,
trends and practices, it is essential
that firms fully embrace the spirit
of the new regulation to avoid the
potential for consumer harm that
currently exists.
For those firms with their blinkers
still firmly on, convinced they
have everything in order, Hughes
encourages them to assess their
performance in the context of the
market.
“Too many firms lack insight on
their market position and would
benefit from a clear, unbiased
view on how they measure up,
helping them avoid the perils of
marking their own homework.
Understanding performance
in the context of the wider
market will help companies test
internal assumptions, prioritise
areas for improvement, boost
competitiveness, and demonstrate
their commitment to delivering
high standards for customers to the
FCA.”
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