The Changing Landscape for Insurance and Long Term Savings

Theme: Industry
Reputation

Tackling the poor reputation of the insurance industry is a key priority for the CEOs
of the major UK insurers who do not believe insurers should be keeping politicians,
bankers and journalists company at the bottom of public opinion surveys in the
decades to come. No single factor holds the key but several matter:

Insurers will continue to suffer from the collateral damage inflicted on the entire financial
services sector by the banking crisis, a crisis in which insurers as investors played a
contributing role and, in some cases, were linked by common ownership. This
association is impossible to avoid and will not fully dissipate until the economy has
recovered but the asset management arms of insurers have been at the heart of
post-crisis governance reforms and insurers have had some success in establishing
their distinctiveness in the eyes of key stakeholders.

A second factor is the industry’s relatively poor consumer reputation. This is explored in
more detail elsewhere in this document but insurers recognise that good customer
experiences and swift resolution of avoidable complaints will increasingly have to
continue to form the bedrock of a broader foundation of insurer reputation.

More difficult to change is the relative unpopularity of the core insurance product; a
necessary but unglamorous ‘grudge-buy’ in an age where the zeitgeist is set by the
exciting opportunities for entertainment and leisure provided by the technological
innovations of the IT sector. Set against this, the fundamental dynamic of many
insurance products is to provide security against the financial consequences of a risk a
customer never hopes to confront, or provide income for future scenarios that
customers would prefer not to think about. The bias of human beings will continue
towards near-term gratification always, making it a challenge to crystallise the value of
insurance compared to the entertainment gadgets made possible by the technology
and connectivity of the future.

Insurers know the answer will partly come from providing undeniable value when the
product is required; the bar for meeting customer expectations will always be higher for
insurers precisely because the product may not be needed very often or because
customers have paid in for many years to get the benefit of it. Given the anxiety which
often accompanies a general insurance claim, the opportunity to change perceptions by
offering first class service is an increasing area of focus for industry leaders. Equally the
answer will have to come from being unapologetic in advocating the need for insurance
in a fast-changing world where standards of welfare provision are not a given.

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A Brave New World

Think Piece 7: Regaining and Our industry plays an integral and valuable role in
society - we protect for today and invest for the future.
Strengthening Trust in the Our customers can go about their daily lives without
Insurance and Savings Sector fear for the financial consequences when things go
wrong, whilst we help them to save to build their future
Paul Evans, Group CEO, AXA UK & ABI financial security. That is a compelling proposition -
Chairman one which meets very obvious customer needs - and is

Last year as protectors we paid

£14.5 billion - that’s £40 million each
day - in motor and property claims
Matt Cullen, Assistant Director, Head of
Strategy, ABI delivered by an extremely competitive industry which is
increasingly taking on different forms as new ways to
serve customers’ needs emerge.

So we should not be bashful in showcasing the best of

what we do. Last year as protectors we paid £14.5 billion
Summary - that’s £40 million each day - in motor and property claims,
• The UK insurance and savings sector plays a vital role in £370 million was paid in claims to travellers who needed
society – providing certainty and security, enabling help, and £3.6 billion to provide access to private
saving and investing for the long term. Despite this, trust healthcare. For savers, we invested £1.9 trillion (equivalent
in insurance and savings firms is poor. to 25% of the UK’s total net worth) – providing enormous
fuel to the economy, and crucial funding for its necessary
• Greatly improving the transparency and clarity of product
infrastructure36. These are remarkable figures which serve
offerings is a crucial step in regaining trust, by helping
to highlight the positive contribution we make to society
customers better understand what they are buying.
every single day – we are there when our customers need
• Firms must also be prepared to leverage the ‘internet of us most, both for tomorrow and for the long term.
things’ to increase their day-to-day role in their
customers’ lives. More touch points will mean greater Nevertheless, as the statistics below from the EY 2014 Global
opportunities to demonstrate value and trustworthiness. Insurance Survey show, levels of trust in the insurance sector

Figure 1: Level of trust (% of consumers citing “complete trust” and

“moderate trust”) by type of business
Global North Europe UK LATAM Middle Asia Australia Japan
total America East/India

Insurance 70% 65% 61% 53% 81% 79% 70% 53% 72%
companies

Supermarkets 84% 89% 87% 80% 87% 80% 83% 78% 83%

Online
shopping 78% 78% 78% 89% 77% 80% 78% 72% 73%
sites

Banks 82% 73% 61% 55% 80% 94% 92% 71% 82%

Car 80% 64% 84% 76% 90% 86% 79% 74% 85%
manufacturers

Pharmaceutical 68% 55% 63% 69% 83% 76% 67% 69% 72%
companies
37

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 The Changing Landscape for Insurance and Long Term Savings

are relatively poor compared to many other sectors globally. So when these tangible moments arrive, for example a
This lack of relative trust is even more pronounced in the UK. household insurance claim or when a customer comes to
access their savings, firms face a rare ‘moment of truth’ for
For an industry full of people passionate about making a reputation and trust – not only with the customer
difference for customers, it is extremely disappointing that concerned, but with all of their peers who, in the absence
the sector has so badly failed to secure their trust. In of their own ‘moments of truth’, rely on the experiences of
customers’ moment of need, they worry that we will not be others – and of course negative experiences generally gain
there for them; when they come to access their more visibility than positive ones. Will the claim be covered,
investments, they worry that the charges will have eaten or will there be an exclusion in the small-print? Will there be
away at their hard earned savings – that the industry will charges the customer hadn’t expected?
put making a profit ahead of meeting their needs.
These are questions the customer should not be left
There is a significant disconnect between the noble wondering about in their moment of need. Over the years,
purpose firms strive so hard to serve, and the trust that is rather than ease communication with customers, a
undermined by some of the ways they go about it. combination of regulation and legislation has served to
Overcoming this is the profound challenge, and opportunity, make the communication of what is really important less
of our generation – adapting business practices to earn the and less clear amid the fog of mandated disclosures.
trust of our customers and thereby forge deeper, more Furthermore, whilst in the retail sector customers can make
effective and ultimately more profitable relationships. purchasing decisions with reference to the online feedback
of fellow customers, this is a relatively nascent concept in
Two processes stand out as key steps for the industry to the insurance and savings industry.
take over the next five years in order to regain and
strengthen trust. First, radically improve the transparency of
what we do, and second, deepen our relevance to, and day
To earn customers’ trust we must
to day engagement with, customers by harnessing ‘the work harder to make plain the key
internet of things’ to become more akin to ‘life consultants’.
features of the product, its cover
1. Radically improve the transparency of what we do and its charges in a wholly
It is a given that customers should be able to make an transparent way.
informed decision about the product they purchase – what
is covered, and what is not? – what charges will be applied To earn customers’ trust we must work harder to make
in given situations? – what is the reputation of the company plain the key features of the product, its cover and its
in the eyes of its existing customers? Instead, unless a charges in a wholly transparent way; and share publicly the
customer uses a broker or IFA, the tendency is simply to feedback of other customers’ experience at their moment
make the important purchase decision predominantly on of truth.
price and perhaps brand perception, and in many cases
without pausing to better understand the relative quality of • Online customer reviews are crucial if we are to
the product chosen. Moreover, unlike other purchases, persuade customers that the vast majority are delighted
there is no immediate consumption – if you buy a new by their experience;
mobile phone you know, through immediate use of the • Simple illustrations of every possible charge must be
phone, if you have made the right purchase. But with an given if customers are to have confidence they will not
insurance or savings product, whilst they provide intangible suffer hidden charges;
reassurance and certainty every day, the only tangible • Clear information, at point of sale, on the circumstances
enjoyment is at the point of claim or withdrawal. where a claim will, or might not, be paid are key if a
customer is to really understand how the cover will work
in practice;
• Transparent disclosure of the percentage of customers
who claim each year, and the proportion of those claims
which were not paid, with illustrations of typical reasons;
so that a customer can gauge value for money.

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A Brave New World

The firms that can do more to help their customers So the internet of things creates an opportunity to
understand the products that they are buying, and be on reposition the sector’s relevance to customers, through
hand subsequently to offer accessible guidance and help, more frequent touch points and therefore more immediate
will be making great strides towards building trusting and regular enjoyment of the customer’s purchase.
customer relationships. Delivered well, this can help to build trust. But crucial here
will be how we access, gather, manage, protect and use
2. Harness the ‘internet of things’ to become ‘life the customer data to their benefit – getting this wrong could
consultants’ damage trust irreversibly.
The greater our relevance to our customers’ lives, day in,
day out, the stronger bond of trust we can form. Today, These are just two processes of many through which the
touch points are relatively limited – in simple terms ‘I buy/ industry can work to regain and strengthen trust.
invest’; ‘I renew/contribute’; ‘I change’ and ‘I claim/ Everyone will have their own ideas about the most
withdraw’, and in general insurance it is not uncommon problematic reputational challenges insurance and
that a customer never needs to utilise the tangible benfits of savings firms face, and the most effective ways to
the products they purchase. It is difficult to build deep re-establish trust with our customers. But hopefully
trusted relationships when there are so few meaningful everyone can agree that concerted efforts must be
interactions. made, individually and collectively, if we are to preserve
our privileged position in society.
Technology will offer opportunities to change that –
connected cars, telematics, the connected home, health
monitors, mobile apps, 24/7/365 online investment
platforms, all offer the opportunity for firms to adapt their
business models to become more relevant to customers on
an ongoing basis. The statistics are staggering – where
today there are roughly 8 billion connected devices, this
figure will reach 50 billion by 2020, and a trillion by 203038.

The insights provided from connected devices, or the

‘internet of things’, will enable us to effect a radical
repositioning – from a reactive ‘we are there when you need
us’ to a proactive ‘we are with you each day to help you
reach your potential’. Not only are we there to help you
when things go wrong, but we will also provide advice and
insights to help reduce the risk of such issues happening in
the first place. Not only are we there to enable you to save
for the future, but we will also encourage and help you
make the right decisions on saving, informed by the insights
we have about you, and people like you.

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