Household Insurance: In household insurance we trust?

Our consumer champions certainly highlighted no shortage of issues about household insurance, and only Jo Causon from the Institute of Customer Service chose not to use up the maximum permitted of five.

Nevertheless, only four issues were singled out by more than one champion. This might suggest that the household insurance field isn’t in such a bad place after all. Indeed, Causon highlighted that the insurance sector as a whole has consistently achieved above average scores in the ICS’ twice yearly customer satisfaction index that covers 13 industry sectors.

It seems that most household insurers are now making a genuine effort to address customer needs. Instead of just issuing the traditional platitudes, many point to steps they are actually taking to address problems. This seems to be driven by a change in culture, not simply by fear of regulation or the power of social media.

Four issues were mentioned by more than one panellist. In fact, each of them was highlighted by three consumer champions.

The participants
Six consumer champions were invited to raise up to five household insurance issues each.

Jo Causon, CEO of the Institute of Customer Service




James Daley, managing director of Fairer Finance




Teresa Fritz, independent consumer finance advocate




Rebecca Rutt, senior insurance writer at Money Saving Expert




Laura Shannon, personal finance correspondent for the Mail on Sunday




Graeme Trudgill, executive director at the British Insurance Brokers’ Association, reporting on issues raised at Biba’s call centre



Twenty-two household insurance providers were invited to comment on the issues raised. UK General declined to take part, while More Than, NFU Mutual and John Lewis Insurance provided minimal input. Worthwhile input was received from AA, Admiral, Ageas, Allianz, Aviva, Axa, Co-operative Insurance, Covéa, Direct Line, Ecclesiastical, Endsleigh, HSBC, Legal & General, Lloyds, LV, M&S Bank, Saga and Zurich. Companies were not required to answer on all issues and a selection of the best responses have been included here.


1. Uncertainty over cover
The issue, raised by Laura Shannon, James Daley and Teresa Fritz, is certainly very much on household insurers’ radars. A particularly common scenario, for example, is people not realising that they are not covered for wear and tear.

Amanda Blanc, CEO at Axa Insurance, says: “This is a crucial element that causes a lot of the distrust and is probably one of the easiest for the industry to fix. It’s caused more by lack of proper communication and understanding rather than by there being anything intrinsically wrong with the processes.”

Different insurers point to various initiatives they are undertaking to address the problem but they are all singing from broadly the same hymn sheet.

Lloyds Banking Group, for example, strives to make it clear that home insurance is designed to protect property from sudden and unforeseen events. It advises customers on how to carry out regular maintenance checks on their homes so they can identify and rectify any issues before they become bigger problems.

Zurich Insurance says it continually seeks feedback from customers, reviews policy wordings and tries to ensure clarity of communication and accessibility of key documents.

Co-operative Insurance, which finds a lot of people are confused regarding what valuables are automatically covered and which have to be stipulated, is developing an online tool to make people aware of the dos and don’ts in this respect.

Stephen Walker, head of claims operations at Covéa Insurance, explains: “We put a lot of effort into making people know whether they are covered when they phone up to claim. If they are not covered, then you must tell them as clearly as possible and also about the other things they could do. There may, for example, be faulty workmanship from someone else involved or we may direct them to Citizens Advice.

“Trust can be eroded if you don’t think the journey through. Some genuine customers have to go through the claims validation process but when they come out of this, it’s very important to make it clear that you want to pay them and that you believe them.”

Respondents: Lloyds Banking Group; The Co-operative Insurance; Covéa Insurance; Axa; Zurich

2. Auto-renewals
Automatic renewals was cited as a problem area by Laura Shannon, Teresa Fritz and Rebecca Rutt. It seems to be where insurers are most culpable, but many acknowledge they would like to do something to rectify the problem.

The key issue is not the basic principle of auto-renewing, which can act as a safeguard against customers forgetting to renew. It is that almost all insurers, with the notable exception of Axa, don’t provide details of the previous year’s premium, and the practice can seem very underhand.

Among the justifications put forward is the possibility for consumers to find out the premium by phoning up or accessing online portals. But this is not really convincing and revealing the previous year’s premium could become standard practice soon.

Those providers that report that they are working towards it or looking into it include Lloyds, Aviva, Zurich, AA, Saga, Endsleigh and LV.

Roger Ramsden, CEO of Saga Services, notes: “Like most industries, insurance involves introductory discounts, so this could prevent people from renewing at attractive terms. There are some practical issues to get through but revealing the previous year’s premium is ultimately something we should all do.”

LV Direct managing director Selwyn Fernandes adds: “There is a need for a standard to be adopted across the industry but we are currently awaiting the outcome of the Financial Conduct Authority’s thematic review of automatic renewals, due by the end of the year. If as an industry we did something and the regulator did something different, then there would be huge costs.”

Respondents: Axa; Saga; LV; Lloyds Banking Group; Aviva; Zurich; The AA; Endsleigh

3. Lack of simplicity & clarity
Jo Causon, James Daley and Laura Shannon pointed to the sheer complexity of policy wordings and the need for simplicity. Insurers are only too aware of these issues and most accept that there is still scope to do better.

The problem is that they are dealing with a legal document, and one that – with more than 20 perils covered – needs more explaining than most personal lines policies. So attempts at simplification are always going to be a balancing act.

Insurers volunteer initiatives like investing in dynamic FAQs, web chats and videos and providing more product summaries. But one is left with the feeling that this is a nut that will never be entirely cracked.

In particular, it is hard to see what more insurers can do regarding complex terminology surrounding locks, notably the term “five-lever mortice deadlock”. They are already incorporating relevant jargon busters and diagrams in policy booklets and website content, and some aggregator sites also have useful pictures.

Furthermore, not all insurers make locks an issue for everyone. Allianz, Aviva and Ecclesiastical only start asking about locks if policyholders are in high risk areas. Saga only asks about five-lever mortice deadlocks when contents are worth over £75,000, while Co-operative Insurance and M&S Bank never specify that particular type.

Kevin Roberts, broker director at Legal & General, remarks: “Unfortunately, household insurance is a complex product and not like downloading an album from your favourite band. It’s difficult to know what more we can do because it’s not an interesting read, even for someone who works in insurance, and this is hard to get around.”

But, if there is one crumb of comfort, it is that the consumers themselves do not appear unduly inconvenienced. Noel Summerfield, head of household at Admiral, says: “We are always taking on board customer feedback and trying to improve wordings but our complaints for household are lower than for other products. We get queries rather than complaints.”

Respondents: Legal & General; Admiral; M&S Bank; The Co-operative Insurance; Allianz; Ecclesiastical; Saga; Axa

4. Overinsurance & underinsurance
Issues relating to overinsurance and underinsurance were raised by Graeme Trudgill, James Daley and Rebecca Rutt and, once again, the primary challenge facing insurers is an educational one.

In particular, more needs to be done to stop consumers being confused between the sum-insured policy (based on the cost of rebuilding the property from scratch) and the market value, which readily springs to mind. In this respect, aggregator sites provide helpful tools that estimate the rebuild value based on a range of criteria.

Some insurers help combat the problem of underinsurance for buildings cover by providing high blanket sums assured – £600,000 with Zurich, £750,000 with Ecclesiastical and unlimited with Admiral. Co-operative Insurance is also moving towards £1m in product development.

Bedroom-rated policies – based on the number of bedrooms of a home, instead of the exact rebuilding costs – have also helped. As have online tools and other initiatives.

HSBC, for example, includes an automatic sum insured inflation factor within its renewal offer and, for high-value items like antiques, it encourages policyholders on a regular basis to obtain professional valuations.

Phil Ost, director of direct and partnerships at Zurich Insurance, says: “Some of the tools calculating buildings and contents are getting more accurate and people are getting more aware of the need to have an accurate view of contents. Perhaps the biggest issue is the many people who don’t take contents cover at all. They don’t really realise what their contents are worth and are prepared to take the risk.”

Respondents: HSBC; Zurich; Ecclesiastical; Admiral; The Co-operative Insurance, Axa

Champions’ personal bugbears
Admin fees
The practice of charging £10 to £30 administration fees to change names and other policy details was singled out by just one consumer champion, Rebecca Rutt, although it seemed deserving of being mentioned more. Consumers could be forgiven for assuming it would be a free service.

Plenty of insurers robustly defend this stance by pointing out that there is a definite cost involved and that it is fairer than the alternative of charging all policyholders more. But, at the same time, there is a growing appreciation that dispensing with such admin fees could be the way forward.

Lloyds, Direct Line, M&S Bank and – on their direct sides – Ecclesiastical and Legal & General don’t charge any such fees. Nor does Endsleigh on the new contents policy it launched last year. LV Direct doesn’t charge for changes in names or risk details but it does for addresses. Aviva, Allianz and Axa waive admin charges for those who make changes online, Co-operative Insurance is intending to follow suit next year and Ageas, which already uses this approach for its Castle Cover brand, is looking to extend it to other brands.

Sarah Newell, personal lines development director at Endsleigh, explains: “Significant investment would be needed to change systems to do without the fees and the industry is fairly comfortable about the way we are charging them but we could do more. Justifying the fee needs to be done better.”

Respondents: Ageas; Endsleigh; Direct Line; LV; Lloyds Banking Group; M&S Bank; Ecclesiastical; Aviva; Allianz; Axa; The Co-operative Insurance; Legal & General

Interest
The practice of charging interest on monthly premiums is another issue raised only by Rebecca Rutt. Insurers consider they are effectively making a short-term loan and could be obtaining an investment return on the capital used.

The APR, which is built into the overall product cost on aggregator sites, can vary from 15% to 40%. While the higher end may seem extortionate, consumers do have the choice of paying premiums annually without incurring interest, and insurers commonly report that around 50% choose to pay monthly.

There is a slight trend towards providing interest-free monthly premiums. Lloyds, HSBC and M&S Bank already do, and so does Endsleigh on its new contents policy.

Respondents: Lloyds Banking Group; M&S Bank; HSBC, Axa

Service
There is also some momentum in the direction of Teresa Fritz’s expressed desire to find a way of measuring a company’s post-sales service and claims management service. Both Axa and Aviva already publish consumer reviews of their service standards online and, because most companies already conduct their own internal research in this respect, it doesn’t seem impossible that some form of industrywide comparative data could eventually become available.

It is however essential that companies compare like with like, which is obviously the main stumbling block.

Respondents: Aviva; Axa