The State of the Insurer Nation: Week Three: Public Perception

What is the public’s view of the insurance sector? Repeated surveys tell us the answer is generally pretty poor, much to the frustration of the insurance industry. One of the issues that the industry grapples with is how to change the perception of an insurance policy from being a grudge buy to a valued product, offering financial protection and security. However, regulatory investigations have put the industry in the spotlight a few times in recent years and have shown it up in an unflattering light, unfairly in some cases. The payment protection scandal in the UK damaged both the balance sheets of the organisations – mainly banks – that mis-sold the product and, by association, the reputation of the insurance sector. More recently, investigations into sales practices and add-ons, in particular, have again brought insurance onto the front pages for the wrong reasons.

Then there is the sense within the insurance industry that it has suffered from public antipathy towards banks since the global economy crashed in 2008 partly from being tarnished with the same brush by politicians, regulators and the media industry. However, research by EY published in November 2014 found that despite the banking crisis, insurance customers are more trusting of the banking sector than of their insurance provider. The same survey, of 23,595 insurance customers across 30 countries, found 50% more UK customers are distrustful of insurers than the global average.

There is a similar story across the globe, revealing the general low regard of insurance among the public.

Our survey reveals the level of frustration among industry leaders at the lack of knowledge that the public has about the good that insurers do in supporting global industry and private endeavour. They would like to see their industry get more credit for the contribution it makes to the economy and as an employer. They know the industry has a battle on its hands to change the public perception and they accept it is largely up to the industry itself to work harder to change people’s minds.

To this end, the industry is looking for ways it can counter its poor reputation and publicise the times when it performs well.

It is not just about influencing media coverage; the industry is getting better at dealing with severe claims events. For example, in the US, catastrophe modelling has improved and uptake of these models has increased since Hurricane Katrina a decade ago. Work to improve claims processes and produce clearer policy wordings are also aimed at delivering better products to customers. For the CEOs we spoke to in the State of the Insurer Nation survey, challenging the low opinion of insurance among the public comes down to two things, changing the perception that the industry is out to rip them off and delivering a better service and better products.

Methodology
We contacted CEOs or equivalent at the largest 30 general insurance firms in the UK, according to AM Best figures, in March and April of this year. Between May and July we interviewed all 17 who responded positively to taking part. Interviews were either over the phone or face-to-face and lasted up to one hour. All their responses have been reported on a non-attributed basis and not every single question was asked to all the participants due to time constraints. Their responses to questions of government and politics are covered in this week’s report.



What is the public view of the insurance sector?
CEOs were all in agreement that the insurance industry needs to improve its reputation among the public but their views on the fairness of their reputation varied from thinking it is self-inflicted, to being the result of being misunderstood, or unfairly bandied with the banking sector by the mainstream media, opportunist politicians and regulators.

Two of the CEOs made the point that people’s views of individual insurance providers is often far better than their impression of the overall industry. “Like many other things if you ask a customer, tell me about the insurance industry, the banking industry or the NHS, they’d probably say worse things about the sector than when you ask them about [a specific company],” said one. “Then they say, actually, it’s pretty good, in my experience. So, like any big sectors, people have worse views of the collective than they do of their insurer and their individual interactions.”

Another person added: “The public see insurance mostly as a grudge purchase, they don’t want to buy it. However, when they use the product, they will probably have a good experience – say with a claim, for example. We have to consistently deliver at the critical point in terms of service.”

A hard sell
For others, the issue of how to change the perception of insurance from being a grudge purchase is the last and possibly highest hurdle to jump after the work to simplify wordings and improve claims processes. No one wants to be in a situation where they have to make a claim, yet by not claiming the policyholder perceives that they have wasted their money.

One CEO said: “If insurance comes up in the pub, it is likely to be a negative conversation about how a claim took too long, a large price increase or a fee being charged where it wasn’t expected. There are some – but very few –conversations in the pub about how a claim was settled really quickly and better than expected.”
Another added: “Insurance is not a product that people wake up in the morning and think I must go and buy an insurance policy.”

While another respondent said: “Insurers are viewed not quite as bad as banks but are not held in particularly high regard. It is seen by too many as a necessary evil and we don’t do a great job of collectively and individually getting people to understand the value insurance brings. This is particularly true in the case of a compulsory purchase like motor, which is seen a tax to some extent.”

Misunderstood
Trying to convey the worth of insurance products had CEOs struggling to come up with how this message could get through to the public and several admitted that insurers and their representative bodies need to do a lot more to sell their own success stories.

One respondent said: “Look at natural catastrophes, like the UK floods, or some of the recent terrorism incidents – the speed of how the industry dealt with them and the speed that we deploy people and get businesses back up on track does not get showcased.”

Another added: “They dislike us about as much as they dislike the energy companies. As an industry we do a poor job of demonstrating our value to society and our value to the economic ecosystem of the world. Insurance and reinsurance is a huge economic enabler and also a major contributor following either manmade or natural catastrophes and we seem to do a very poor job of really showing that value proposition.”

“There are great stories to be told about the number of people we employ in the industry, the professional training and development that people have, the proportion of the economy that we represent and the amount of taxes that we pay,” one CEO explained. “We enable consumers and businesses to manage and mitigate their risk and the amount of money that we pay in claims and the number of claims that we pay – there’s a great story to be told. And yet we just never seem to be able to get on the front foot and tell that story.”

One insurer summed it up by saying: “They just think we’re there to avoid paying claims, that we use complicated language and because only 10% see the benefit of a policy operating in any one year, 90% have it with no perceived value.”

Another highlighted the industry’s treatment: “The industry is often unfairly portrayed in a poor light and that comes back to why we need a stronger single [industry] voice. Generally there is not a good understanding of how claims are paid and how quickly, particularly when it comes to some of the larger corporate claims – getting businesses back onto a sound footing, it can play a significant role in their lives. That doesn’t come across strongly enough in the public perception – it is all about the time that a claim couldn’t be paid.”

Trust and perception
Most of the CEOs said the public is generally untrusting and sceptical of insurers, thinking they want to avoid paying claims and use small print to befuddle their customers, and that the industry needs to keep improving its service and products in order to prove people wrong.

One said: “A lot of times we’ll hear clients argue you never pay claims. The broader media pick up on the bad stories. You’ll always hear about something that didn’t work well but they never showcase the exceptional cases where the industry really can step up.”

Another CEO added: “There are still perceptions that we try and wriggle out of claims and then turn to the small print. I don’t think that’s true, but that’s still the perception and we need to keep working on that. We do pay most claims but sometimes we get a bad rap from the media, which tends to seize on the small number of unsuccessful claims rather than the vast majority of very successful claims.”

“The perception is we are all making huge amounts of money, which is clearly not true, and will do anything to avoid paying a claim,” explained one. “That perception exists more strongly for people that haven’t made a claim than those that have. The reality is different to perception. The problem with the product is that most people don’t get anything for it. You get intangible piece of mind and you hope never to see any return on it. That makes life difficult for us as an industry. We can keep improving claims service but we also do ourselves a disservice in how we treat people at renewal – that doesn’t paint a good picture.”
Own worst enemy
Several of the CEOs believe the industry needs to take more responsibility for the poor regard that the public has for it and said that past misdemeanours as well as ongoing issues around service are at the root of the problem. Most felt the industry is moving in the right direction but the progress has been painfully slow for some.

One CEO said: “In part [the public’s view] is informed by history and I say that in the context you only have to go back to pension mis-selling, endowment mis-selling and the latest one, PPI. You then overlay the overall financial crisis onto the financial services sector. That overspill and that history clearly undermines confidence.”

Another added: “There are still some things that customers find frustrating. I still think it’s quite hard work to buy and to renew and make amendments to claim on insurance and people do it quite infrequently, so every time you come into it, it’s a bit unfamiliar. We need to make it as easy to do all those things as Apple or Sky makes it in what they do.”




One person believed change is coming with technology: “There are still too many bandits in the shadows that are allowed to operate and that has to change and that will change. That probably will be driven by technology, ironically, so the technological disruption that’s coming down the pipe is going to be huge and as significant as the introduction of the internet in the late 1990s. That will begin to drive more transparency through the industry and it will change the perceptions.”

Race to the bottom
The sticky problem of competing on price also raised its ugly head as a cause for the devaluing of insurance products and the services the industry provides. It was also suggested that by encouraging customers to always consider the price of a policy over its quality, insurers are creating an environment in which fraudulent activity is deemed more acceptable than would otherwise be the case.

One person said: “Driving down the price of consumer policies and offering cheap gimmicks and discount deals have contributed to insurance products being devalued in the minds of consumers.”

“As an industry we seem unable to provide the appropriate sense of value for people who buy our product,” added another. “The race to the bottom for price rather than value doesn’t help anyone. Peace of mind needs to be there all the time not just when something really bad happens.

“It would be good if we could be there for more than that. Customers, therefore, think nothing of acting fraudulently as they don’t get a sense of value.”

Commercial comfort
Some of the respondents took comfort from the fact commercial lines customers are generally better informed and less hostile towards the role of insurance and felt the message is slowly getting out. 

One said:  “Banks aren’t going to lend to anyone unless you’ve got insurance because they lend against an asset and if the asset isn’t protected, what are they going to do? So most intelligent buyers get the importance and the role of insurance. They may have had the odd bad experience, but it is an essential function.”

Another believed: “Most commercial customers have a pretty high opinion. They realise they have an awful lot of assets and they need to protect those assets to be successful. And if they don’t insure them, they have no other option to protect the longevity and success of their business.”

How can the public’s perception be improved?
The key ways insurer CEOs believed public perceptions could be improved were by service and actively changing perceptions. The most common suggestion was to counter negative news reports about individual policyholder complaints with positive stories about the number and speed of claims paid by the industry during a big event such as flooding that affects a lot of people. For others, the industry profile would improve if it stopped cheapening its own product through giveaways and marketing gimmicks. The third most common suggestion was to improve all aspects of service, followed by the decision to stop encouraging customers to shop around by offering discounted premiums to new customers, and as one person suggested: “It is a combination of running our businesses better, improved behaviour in terms of communication with customers, and then better information and examples of the contribution that we make, what the real value proposition is for the sector. It would all be of benefit.”

Almost all the insurer CEOs said the industry has made big strides towards simplifying policy documents to help consumers understand what they are buying. Most felt that firms still have work to do in this area, particularly in the personal lines and SME spaces, but several whose firms are currently trying to address the issue, admitted it is not as easy as it is made to sound by the Financial Conduct Authority, which has called for simplification. A few felt the perception of complicated T&Cs is more problematic than the actual documents and some suggested there is a danger of oversimplifying policies, given they are legal documents.

Views on motor insurance trends, rates and profitability
Widespread confusion at the direction of the motor market over recent years was felt among the CEOs, both from those in the sector and those looking in from the outside to impact the customer’s perception of the sector. The lack of profitability and the short-term approach to pricing among market players were the most frustrating factors while the ability to innovate as a result of the flightiness of customers made it exciting, admitted a couple of insurers.

“Dysfunctional, unsustainable and mad” is how one CEO described the UK’s motor insurance market, asking: “How can you have a market that has only made a profit in one year in the last 20?” Another commented: “It seems to have been 25 years of lemmings.”



The quick negation of the profit increase brought about by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 seemed to shock several players. One insurer said: “We’ve reached the point where that really is unsustainable from a profitability point of view. There were good reasons to believe that claims cost should reduce as a result of Laspo but [firms] anticipated the changes and reduced prices accordingly because the market is so competitive and because we’ve convinced ourselves that there’s a good reason that claims cost will reduce. But the impact of Laspo has now passed and rates have been continuing to decrease. That made no sense to me at all.”

“I know the motor market quite well but don’t understand why rates are not going up more than they are,” said another person. “I guess there are a couple of players there who are holding the market back.”

“We’ve seen rates improve probably in the last 12 to 24 months but there’s a concern that we’re starting to see them go in reverse,” one person commented, while another said alhough they thought rates have been stable, “they need to go up given there is planned inflation of 3% to 5% if profitability is going to be maintained”.

One CEO called for more rational rate movements for the sake of customers, commenting: “The idea that rates should increase by between 4% and 6% a year would make much more sense to a customer than up by 40% and down by 20% over the soft part of the cycle.”

One person brought up the unresolved issue of young driver risk and claims costs, commenting: “There is still a substantive weight of catastrophic loss that arises as a consequence of young drivers on our roads. And there is a question of what are the right interventions to be made, that are both proportionate and reflective of making a substantive intervention into that issue.”



Despite its flaws a few looked optimistically at the opportunities for innovation within the market with one person citing the possibilities presented by the electric car, smart technology and the shared economy. Another CEO commented: “By any market standard in the world it is very peculiar in a low interest environment and it is strange people are willing to operate at around 100% combined ratio. That is also what makes it interesting. Because there is no stickiness with the consumer and they have been taught to shop around, you can bring great innovation easily.”

“It is clearly a highly competitive market as well as pretty transparent when you look at the aggregator option, which provides customers with a pretty clear window in which to determine buying choice. Also, the world is changing, technology is having a major impact and in the context of everything from automated breaking right through to the future potential of driverless cars, and everything else in between. So it’s a pretty fast moving environment, which is competitive, will continue to evolve and one within which actually there are some facets of the market that still don’t operate effectively.”


Next Week
How important is data? What impact is social media having on the insurance market? And is there a place for social insurance? In next week’s State of the Insurer Nation, the CEOs’ responses to these questions will be published along with their thoughts on what the emerging risks are for the market. To share your thoughts on what you have read you can tweet @insurance_post or comment at postonline.co.uk/tag/insurernation