The scramble for insurers to implement the first stage of the Financial Conduct Authority’s Consumer Duty is over, but the profession’s future relationship with its regulator will depend on whether it takes an adult, risk-based approach to the Duty, or opts for a more parent-child, compliance-based relationship.

A risk-based approach involves understanding what conduct looks like from the point of view of consumers and SMEs. They have told us that the most important factors are:

• price;
• confidence that insurers will keep their promises;
• loyalty to existing customers;
• ease of service;
• relationship – a sense of being known by the insurer and being important to them; and
• protection – appropriate cover that reflects the customer’s individual priorities.

And when making a claim:
• respect – being treated like a customer, not a fraudster;
• speed; and
• control – for example, over when and how repairs are made.

Much of our research shows that insurers and brokers are performing well against price. In spite of the cost-of-living crisis, consumers and SMEs rate their insurer well against statements like: ‘The price I paid was reasonable for the level of cover that I get’.

However, consumers – even employers with up to 250 employees – still don’t believe that they are getting a fair deal on renewal premiums. It is not so much the total cost itself that concerns consumers and organisations, but the idea that they are not being offered a premium that matches their risk profile – especially when the same provider is offering lower prices to other customers for the same risk.

Our research also shows that insurers tend to perform very well in making it easy to do business and that insurers often do well against key statements at the claims stage, such as ‘my insurance company did not try to avoid paying out’. There have been occasional blips, not least for travel and business interruption insurance during 2020, but consumer and SME opinions have bounced back since the crisis passed.

For products, the key measure is levels of protection and how well the product is explained, and here consumers feel that insurance products broadly cover their needs adequately. The main quibble from both consumers and SMEs is around being able to adjust their level of cover.

Insurers command respect because they are experts in risk. Success in complying with the Duty means carrying that expertise through in two ways.

First, insurers must not wait for the regulator to manage conduct risk for them – consumers and SMEs are consistent in what they want, and the firms that address those demands fairly will not only find commercial success, but will reduce regulatory risks in the process.

Second, insurers that live up to their reputation as risk experts, for example by pricing according to risk and not trying to exploit short term ‘elasticity’ of demand, will be the ones that have the strongest and most profitable relationship with their customers.

In the end, the Consumer Duty is all about managing risk professionally and transparently.

Share Story: