Modern Insurance Magazine Issue 62

FEATURES
5
ARTICLE
Consumer
Duty: An
Illusion??
It seems not a year goes by without a new regulatory or environmental change that becomes the
main industry topic of discussion. In the last five years, we’ve seen fallout from GDPR (2018), Brexit
(2019), COVID-19 (2020), Climate Change (2021), and Claims Inflation (2022). More rules and
regulations add yet more red tape to an already broken system.
In 2023, it’s the turn of ‘Consumer Duty’. What sounds like a
step in the right direction (to improve customer protection
and create better outcomes) has all the qualities of regulatory
bluewashing, where a deceptive slogan overstates an industry’s
commitment to responsible social practice, offering the illusion
that we’re creating better consumer outcomes when we’re
merely tinkering at the edges.
Let’s take the example of home insurance. From a customer
perspective, a good outcome would be for me to know that
costs will be covered when my fence blows over in the wind, or
when my roof tiles fall off. 70% of such claims are automatically
denied, which makes a mockery of insurers telling us that 97%
of claims are paid. ‘Ah, only ‘valid’ claims,’ you retort. Silly me, I
should’ve known better.
Similarly, let’s consider motor insurance. From a customer
perspective, a good outcome would be for me to know that
I‘m not on my own when accidents happen, obliged to sort it
out at my own expense. I’d also want a simple way of covering
the claims excess that I’d previously maxxed in order to obtain
the cheapest quote (this is particularly relevant to vulnerable
customers in short- or long-term financial difficulties who are
most at risk of doing exactly that).
Under the new Consumer Duty, insurers will be obliged
to design products and services that meet the needs,
characteristics and requirements of a specific customer
segment. However, I don’t see this happening for as long as the
industry continues to cling to a short-term model - exacerbated
by price comparison websites - where there is a relentless drive
to remove valuable cover and deny ever more claims in order to
maintain margins and drive prices further down. Insurance isn’t
a product that is designed to be used, and subsequently it isn’t
a product that is generally valued. And you wonder why it’s a
grudge purchase??
We really need to think upside-down and move from shortterm
thinking to long-term thinking if we are truly interested in
creating better outcomes.
Let’s start with preventing claims altogether. Whether it’s my
home or my car, the technology exists to monitor, alert and
mitigate against loss. However, no home insurer wants to cover
the cost of additional hardware to monitor leaks or improve
security, both of which hold the key to better outcomes. The
margins simply aren’t there on an annual policy, where
customers are given no reason not to churn.
But what if we thought long-term? As a customer, I would
willingly buy an insurance-backed product where the focus is
on prevention first and claim second, where the insurer could
purchase the hardware leveraging its economies of scale and
spread this over a 36-month policy. What about a service
package option, where a qualified contractor could pro-actively
complete a winter-readiness check to ensure my drains aren’t
blocked? This has the potential for creating great products,
especially if I can achieve peace of mind and see that the cost of
this is cheaper than the alternative. It would also help to avoid
surge/supply chain issues by switching the focus to preventive
maintenance.
Why not go one step further, and create an embedded
insurance product that comes with my mortgage over a 25-year
term? This would align the interests of homeowners, the banks
(who have a financial interest in the value of the property) and
the insurers - allowing the cost to be shared equitably across all
three parties and creating a possible framework for investment
in climate change measures, action that we know we’ll all need
to take but don’t currently factor into our pricing.
As a motorist, I’d also be prepared to buy an insurance backed
product that includes roadside assistance for when my tyre
does get a flat - as well as a smart repairer that could remove
dents and scratches to make my car look like new.
At the moment, I don’t see an insurance sector that wants to
develop genuinely valuable products and services. Everything
we do tells me the opposite. We seem prepared to create
products that don’t offer great value in order to remain
‘competitive’ for the next
shareholder update, pushing all
of the hassle onto customers
and forcing them to sort out
their own problems. If this is the
case, Consumer Duty seems to
be another opportunity to keep
everyone talking a good talk,
without ever having to confront
the real issue.
Time for change, anyone?
Do let me know your thoughts -
michael.lewis@claimtechnology.co.uk.
Michael Lewis,
CEO, Claim Technology
MODERN INSURANCE | 47