A year ago I wrote a blog post about the frustrations of renewing my scooter insurance. Things have not got better in 2018 – and this year I wonder whether the issues are sufficiently serious to merit an industry ‘code of conduct’ or even regulatory intervention to protect both the customer and the reputation of the industry.
Dual pricing – in this case defined as the practice of insurers offering different new business and renewal prices – is much discussed in the UK at the moment. The prevailing view is that dual pricing is wrong in all cases because it punishes loyalty. A recent report by UK consumer magazine Which? found that customers who renew their home insurance policy with their existing insurer could be paying up to 38% more than if they had switched. There is some good analysis about the pricing differential on this blog. Unsurprisingly, the FCA has a review of dual pricing in its 2018/2019 business plan.
We obviously believe in consumer protection, and particularly the protection of vulnerable customers (who may be less able to switch), but price optimisation is a complex issue. This academic paper provides an interesting contrarian view of dual pricing at renewal. Its conclusion is: “The analysis suggests that the practice intensifies competition, leading to lower aggregate industry profits; customers in aggregate pay lower prices, but not all customers are better off; and the high level of switching between insurers is inefficient for society as a whole.”
But a discussion about the superficiality of the current dual pricing debate is the subject of another, long-planned Oxbow Partners blog post.
Last year my scooter insurance cost £277. When I called my broker for a renewal quote today, the agent first asked me what other quotes I had received. After telling him that I had “not yet” looked for alternatives, the agent calculated a renewal quote for me, which took a surprisingly long time (c. 8 minutes). The renewal price came out at £509.84 (with the same excess / cover). The call ended quite abruptly at that point.
I then remembered I’d been emailed renewal offers by comparethemarket.com and noticed that the same broker had quoted me £317 as a renewal premium. I reluctantly bought at that level.
As long as pricing differs by this order of magnitude, the industry will never get the trust of consumers.
Assumptions and disclosure
UK insurance buyers must sit through several minutes of warnings and disclaimers when they speak to their broker. A large part of these scripts concerns the need to be truthful with information provided. I therefore get particularly irritated when I review the information held about me by brokers/insurers and see that they have added heaps of information that I never provided and is incorrect. Today these included:
- Defaulting the price paid for the bike (never asked) to be the same as the insured value (provided – also annoying – see last year’s blog post)
- Defaulting the answer to ‘Will you be using the bike for business purposes?’ to ‘yes’ (correctly) but assuming that the bike will not be used for commuting (its primary purpose)
- Various dates like the date of bike purchase defaulted to the first of the month
When I told the agent of my concerns, she told me that they have no control over the information provided by aggregators. This may be true, but it is no excuse. Either the data interface needs to be improved, or the broker/insurer needs to display only information that is can be populated accurately; other fields in the standard form need to be hidden from the sales journey and schedule.
The industry will undoubtedly argue that it isn’t important whether I bought my scooter on the first or 20th October – but who am I to know which assumptions will lead to my claim being invalidated due to false disclosure?
The use of assumptions by brokers/insurers could lead to consumer detriment if claims are refused on the basis of an assumption the consumer has not noticed. And how can the industry expect consumers to take disclosure seriously if it makes assumptions so casually? Who is the judge of which questions need to be answered precisely and which can be approximated?
Jargon and clarity
Even as an experienced insurance professional, I found much of the sales journey baffling.
I always thought that ‘personal business’ was a euphemism. But what on earth is it in the scooter insurance context? Is personal business different to personal use? If I’m using the scooter to go to meetings, am I using it to carry out the profession of my employer? I honestly have no idea. If only there was a help popup to explain!
Oh wait, maybe that wouldn’t have helped…
This stuff is important. A friend of mine works at an interior design company. One of her colleagues was heading somewhere in his car one weekend and agreed, as a favour, to drop off a carpet with a client on the way. The police stopped him for some reason, and he got done for driving without insurance because he was using his personal car for business on that occasion. Absurd, but true.
Insurers should be obliged make their question sets clear and understandable by their customers.
And finally, there are the usual customer experience points. In my documentation I was sent a file called “policy schedules” which contained a (literally) blank PDF. I assume that was deliberate. I was also called by an agent who wanted to renew my policy literally as I had hit buy on the online form; she had no idea that I had spoken to an agent earlier that day and been offered a quote, or that I had just bought a policy online.
Insurance has a bad reputation amongst consumers and it’s not hard to see why. The issues I noted in my scooter insurance renewal go beyond poor customer experience and pose risks to the industry’s overall reputation and to the lives of its customers. It should be welcomed that the industry has started to take action against dual pricing, but simply abolishing it might have unintended consequences for consumers. In any case, pricing is only a small part of the issue: the complexity of the buying journey is arguably of much greater risk to consumers as they inadvertently buy the wrong cover.
The industry should take action – but given that my insurer turns out to be a Gibraltar company, it is not clear if a ‘code of conduct’ by more reputable insurers is sufficient. For this reason, the clarity of question sets and the use of assumptions should, perhaps, be a regulatory issue.