Even if purse strings are tight, Paul Walsh says insurance providers need to take control of protection to regain consumer confidence.
Many of these younger members of society who are less likely to have substantial savings or valuable assets to fall back upon as income declines are more inclined to make cutbacks to their monthly outgoings.
Yet, for the very same reason, younger consumers are also more financially vulnerable to the hazards of a fall or cessation of income. Increasingly, this phenomenon of younger families getting caught in an underinsured or non-insured gap, for protection products that matter, is a particularly concerning state of play.
The income protection market has shrunk considerably in the past three years, with contraction of several major underwriters leaving the field for some products. Larger distributors such as Lloyds TSB and others have stopped offering certain types of protection altogether.
Battling to survive the dip and recoup lost revenue, many traditional insurers have resorted to penalising customers by hiking up the cost of income protection policies.
Other practices, such as resorting to a selective underwriting model, are also being adopted. While this may help to generate revenue in the short term, these providers are essentially digging the sector’s own grave.
As prices soar, take-up of income protection will further decline and consumer faith in the insurance sector will all but dissolve.
But it is not all doom and gloom. A small group of insurers being led by the mutual sector has recognised that in actuality, these challenges offer a golden opportunity for customer-focused providers to gain market share and transform the sector.
These insurers are tapping into an apparent mood for mutuality that is gaining momentum at all levels of society. Recognising that mutuality can unlock commercial success, Deputy Prime Minister Nick Clegg last month called for a “John Lewis economy” and encouraged businesses to fairly reward staff to increase productivity. Bank bosses are declining big bonuses to actively build consumer trust and eroding a ‘them and us’ perception.
By championing the consumer and offering genuinely good products which are easy to understand, transparent, affordable and relevant, the insurance sector can regain consumer confidence and win customers back.
So, what steps need to be taken by insurance providers to regain consumer confidence and drive policy sales?
The key to securing product sales is to provide not just affordable products, but affordable products that don’t cut corners. The new order of the day is ‘no frills’ affordable policies rather than those with costly add-ons that have no real benefit.
Income protection also needs to be open and inclusive.
It is an unfortunate sign of the times that there are greater risks to income loss or reduction in the current market. We cannot and should not ignore that there is a genuine need to cover these risks and potential customers during this part of the cycle.
IMPROVING CUSTOMER RECEPTION
Consumers and regulators need to have confidence in these products; and for the sector to have any credibility it needs to address the insurance gap appropriately. Refusing or restricting cover for these individuals or charging them extortionate premiums – practices some providers have adopted – does not inspire consumer confidence.
Providers who protect the broadest range of customers as the country faces stark economic challenges will see dividends in the long term.
The consumer of today demands transparent, ‘no jargon’ policies. If people are to spend their stretched cash on income protection, they need to know exactly what they are getting for their money. Policies need to be upfront and clear with the benefits effectively communicated to the customer by informed advisers and in marketing materials.
Lessons need to be learnt from the PPI scandal. In line with the Competition Commission’s measures, advisers should not mislead consumers when discussing a policy, but instead highlight how consumers can benefit from these policies, that the cover is optional and also offer specifically tailored advice.
Many insurance providers, particularly mutual ones, have always operated to these standards. To have a viable income protection market such measures, as mentioned above, are critical and minimum steps to regaining the confidence of the consumer who is now financially savvier.
The need for tailored advice presents a further opportunity for the mutual sector to gain market share as this requires personal contact, either face-to-face or over the phone, with an expert adviser.
Banks are withdrawing from the high street, pushing customers online and relocating their call centres abroad, further alienating consumers. Building societies, credit unions, and friendly societies on the other hand, remain localised and their customers can drop in to a branch or call if they have a query.
The mutual sector is well placed to reap the benefits of a mood of localism that has resulted from these economically challenging times. As mutuals are owned by and operate for their members, they are generally more attuned to the needs and concerns of members.
Consumers are now increasingly keen to support businesses and organisations in their own communities, including financial co-operatives such as building societies and credit unions.
The insurance sector needs to tackle a dangerous consumer and distributor ambivalence towards income protection. Providers need to take a hands-on approach to re-educating consumers regarding insurance and the valuable safety net relevant and reliable income protection can provide.
This cannot be achieved through ‘scaremongering’ and highlighting the extremely negative potential consequences of not having income protection in place, which some providers are resorting to.
Rather, this again comes down to clearly communicating the reasons for and benefits of investing in cover. One way in which this can be done is by letting consumer’s trial a policy, either at a reduced cost or for free. Consumers are far more likely to purchase cover once they have directly experienced the benefits and peace of mind it can ensure.
All these factors point to one conclusion: it is time for the insurance sector to get back to basics and provide genuinely good products to protect consumers against life’s unexpected events.
Providers who prioritise short-term revenue generation must change to ensure their survival. If they do not actively work to regain the consumer confidence which has been lost in recent years, mutual insurers will capitalise on the opportunity some are already seizing by doing what we do best: providing affordable and reliable insurance products.
We recognise that our role is to protect, not to focus on profit maximisation. I am certain this will be a winning formula for the insurance sector.
Paul Walsh is CEO of Cuna Mutual
