Navigating the cost-of-living crisis: embracing choice

In this second edition of Insurance Post’s and PayPal’s three-part series, Eleanore Robinson delves into the transformative power of offering diverse payment options for insurance, shedding light on how this approach can significantly ease financial pressures for individuals.

By embracing choice and flexibility, insurers stand to position themselves as a more affordable alternative among their competitors, ultimately benefiting both their customers and their bottom line.

The need for choice and flexibility

People are struggling to afford insurance products, with the latest figures from Consumer Intelligence’s Cost of Living Consumer Behaviour Tracker finding that 7.1% of respondents had cut back on insurance, with a further 6.4% saying they would consider doing so in the future.

Home emergency, breakdown, pet, and gadget insurance were the types of policies most likely to be cancelled, and consumers would likely switch their home contents, building, car, and pet insurance.

Crucially, a quarter of people said they would be more likely to pay their insurance premiums in instalments because they felt financially squeezed.

The Association of British Insurers advises policyholders concerned about no longer being able to afford their premiums to speak to their insurer or check their website to see if they can help.

Aviva is one insurer that offers its customers the choice of paying annually or monthly, so they can choose the option that suits them best.

This involves the insurer lending the customer the money for their premium, which is then repaid with interest as the year progresses.

A spokesperson said: “Paying in monthly instalments is a valuable option for some customers as it enables them to break down their annual premium into smaller payments, which helps to make insurance – and the essential protection it provides – more affordable.

“If this monthly instalment option wasn’t available, some customers may be unable to access insurance.”

Paying in monthly instalments is a valuable option for some customers as it enables them to break down their annual premium into smaller payments, which helps to make insurance – and the essential protection it provides – more affordable.

Extra flexibility can help customers adapt to changes in their financial circumstances and budget accordingly.

For example, options such as buy now, pay later (BNPL) can help individuals consider their insurance payments when budgeting for the month while preventing the need for a large lump-sum payment that could disrupt their financial stability.

It can also be an opportunity to personalise and tailor the process of buying insurance to the customer’s needs, using payment options they like to use across all devices.

But when offering different payment options, what should insurers be looking for?

According to an Ipsos survey commissioned by PayPal, in 2022, 34% of consumers pay for their insurance online, and 67% of respondents said they decide how to pay before checkout.

Almost half the respondents (49%) said that speed was the main reason they decided to pay online, followed by convenience (29%).

In addition, when choosing an online payment method, 36% of online payers said they mainly focussed on solutions that keep their information secure and protect them from fraud.

Vincent Belloc, vice president & managing director at PayPal UK, said: “Customers want to pay on their terms – how, when and where it’s most convenient for them. They expect the same flexibility and choice when paying their insurance premium that they enjoy when buying anything online. They demand smooth, secure, reliable, and frictionless online payment experiences, and delivering these can result in faster, more on-time payments.

“Cards, mobile wallets, and alternative payment methods such as PayPal and BNPL are just a few of the options, with a greater degree of flexibility helping insurers cater to the preferences of a larger customer base.”

For this flexibility to be most effective, insurers also need to consider issues such as security and risk management, plus areas such as reporting, compliance, authorisations and, of course, the need to improve efficiencies.

Belloc said this is most effective when part of an end-to-end commerce solution that can tick that box and many others.

He added: “As security threats continue to grow, partnering with payment providers with global scale and mass payment volumes also brings the value of improved fraud mitigation, protection, and security. Their insights and data stores also allow for increased adaptability as insurers change and grow.”

The challenges

According to data consultants Experian, insurers must “evidence due diligence in assessing affordability and work hard to ensure they offer the right products with suitable payment options.”

Working alongside the new FCA Consumer Duty guidelines, regulated organisations need to consider how they measure affordability and build this consideration of a consumer’s capacity to afford their insurance policy throughout the life of the agreement, Experian added.

The consultants said this new landscape would require new payment tools, as the “cash cushion” many consumers built up over the pandemic is disappearing.

Many insurers now see digital payments as strategic advantages to their business model.

Legacy modernisation, one of the traditional barriers to adopting these systems, is now a priority for insurance providers. A Gartner survey found that it is a high priority for insurance CIOs, with 55% of organisations surveyed currently undergoing a modernisation project of core IT or back-end systems.

Providing a payment choice is considered an integral part of this.

Whatever payment infrastructures insurers decide to adopt, they should support a vibrant and competitive ecosystem, said analysts PWC in its Future Ready Payments 2030 report. It states that: “Reliability and resilience must be maintained, but it should offer a smart, instant, cost-effective, scalable and frictionless payment experience for end users.”

PWC also argues that customers should have a frictionless experience between different payment types, giving them maximum flexibility whilst minimising costs across the industry.

Furthermore, there is also an opportunity to deliver additional value for customers by leveraging the power of a digital transaction and its data to offer new add-on services and improve the customer experience.

BNPL’s transforming landscape

One payment tool being considered is By Now, Pay Later (BNPL), a short-term financing product that allows consumers to defer making a lump-sum payment by breaking up their payment into a series of smaller instalments, usually offered by a third-party service provider.

This payment method has seen rapid popularity, with recent research from HSBC finding that BNPL is the second most used form of finance (32%), behind credit cards (69%).

The UK Government is currently consulting on proposed draft legislation to bring BNPL into FCA regulation.

Belloc said: “Consumers not only expect but also demand payment options that offer choice and flexibility at checkout, as they have become savvier when it comes to personal budgeting and financial management. Buy now, pay later can give them what they’re looking for.”

Mobile optimisation

The technology being optimised for mobile phones is critical to the success of any payment method.

In the UK, mobile phones account for more than 70% of online traffic to retail websites, so insurers need to consider alternative payment methods that are easier to make when using a mobile.

Belloc added: “These options can also be effective in protecting customers while transacting in public spaces and supporting an improved experience, allowing them to purchase with the click of a button.”

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