Spotlight on dual pricing: The end of dual pricing and what it means

The home and motor insurance markets faced their biggest shake-up in years on 1 January as the Financial Conduct Authority’s ban on dual pricing came into effect. Renewal premiums charged must now be no higher than those offered to new customers for the equivalent policy.

A recent survey conducted by Post together with PayPal suggests that while price will still influence future purchases of home and motor insurance, other factors will become increasingly important.

Among respondents, the biggest percentage (44.3%) thought price would diminish in influence, while the remainder were evenly split (27.8% each) between the ban having no impact or price becoming even more important (See figure one).

The survey clearly showed brand was considered the biggest factor that would influence purchase, followed by customer reviews and the handling of previous claims.

Brand and trust

Admiral Group’s head of motor, Clare Egan, believes the ban will lead to prices becoming much more aligned, so customers may feel they are already getting the right price.

Having the right cover and a reliable insurer to deal with claims have always been important. However, Egan suggests this ‘brand’ effect could magnify when companies with weaker brands no longer have a sustainable option to offer cheaper cover, incentivising new customers to ignore the disparity in reputation.

According to James Blackham, By Miles’ CEO: “In the UK most drivers are used to shopping around for a cheaper price every year and we can’t see that changing overnight – for many, this behaviour is well established. What we will see is fewer discounts available to new business customers on standard products, so those savvy shoppers will have to work harder to find the value in products rather than just compare the top-line price in search of a discount.”

Confused.com’s CEO, Louise O’Shea, says: “As consumers, we want to make sure we’re dealing with reputable and trustworthy insurance brands. We’re paying them a lot of money to essentially look after us. And if the difference in price is minimal, we’re more likely to sway towards a brand we feel more comfortable with or know has a solid reputation.”

However, the survey highlighted some disunity in the belief the dual-pricing ban would lead to more trust in insurers (53.2% believed it would) (See figure two).

James Gearey, Covéa’s managing director for personal lines and protection business, warns that trust in the industry is at a low point. He believes insurers should focus more on articulating value to build trust.

“The recent storms, for example, will focus consumer minds around insurance because the moment of truth is when customers need to reach out for help. What the market doesn’t necessarily do so well is to effectively communicate the lengths [insurers] go to to help customers and the value of that interaction, and, therefore, build trust that an insurer will take care of you when you need it.”

Some insurers are now trying to build trust through introducing product propositions like usage-based pricing or rewards for ‘green’ driving.

Customer loyalty

In terms of loyalty, the survey found most respondents (75.9%) thought that although customers would still check out other prices, they might become more loyal (See figure three).

O’Shea explains how Confused.com sees the power of brand and customer reviews in customers’ selection of a provider.

“Customer service, especially at the point of claim when a customer really needs help, is critical to an insurer building customer loyalty. We have detailed analysis on brand strength and perception that gives us a good view of how customers perceive the insurers on our panel.”

Go Compare’s senior channel development manager, Ryan Fulthorpe, agrees trust in a brand is very important as well as word of mouth. “A lot of customer reviews and testimonials are on our site. We also use a service called reviews.io on our results page showing what customers think of the individual brands they bought previously. Also customers can look on Trust Pilot for individual insurer ratings.”

O’Shea adds: “A lot of people never expect to claim from their insurance and therefore resent the purchase. Therefore at the point of claim it is critical this experience is exceptional. Make sure your customers know that behind the phones, computer screens and policy booklets you are human beings who are trying to help. And then make sure you do help.”

Jamie Hay, co-founder of Abacai, highlights the importance of treating customers with courtesy. “Too often we see incumbents adopt an extremely adversarial approach with their customers because of the antiquated nature of their systems and the threat of fraud in the market. Through our use of artificial intelligence and integrated data platform, we are able to manage fraud more seamlessly and so treat our customers differently right from the start.”

A good digital journey

Everyone agrees a good user experience is vital and in today’s world this means through digital engagement. As the survey shows, the majority of respondents use or plan to introduce online payments for purchases (79.7%) (See figure four) and claims compensation (82.9%) (See figure five).

Ease of payment ranked fifth among the list of factors respondents believed would most likely influence policyholders when purchasing personal lines cover in the future, one of a number of factors highlighting the growing importance of a smooth and seamless digital experience (See figure six).

“Ensuring customer journeys are frictionless and easy to navigate will become more important in securing their loyalty,” explains David Robinson, pricing director, Axa UK Retail Insurance. “This is becoming increasingly crucial at claims stage as customer expectations evolve and increased digital capability is delivered.”

According to Vincent Belloc, vice president at PayPal UK: “Giving people the choice of how and where to access the right information, making claims and payments transparent and straightforward, and allowing customers to switch seamlessly between devices and platforms will be key to creating the feeling of the brand truly being on the customer’s side.”

Other ways to improve customer experience include: shorter repair times, risk mitigation advice, better roadside assistance, legal advice and ancillary services, like gifts and discounts.

William James, head of Markerstudy’s technical underwriting, says these are already part of the core insurance function and the way companies differentiate their service and build their brand. However, he reckons giving high levels of service now is particularly challenging as teams face Covid-related backlogs and supply issues.

Andy Tomlinson, chief operating officer at Cuvva, believes the market will see less switching due to low price differences at renewal, helping build trust and loyalty. Vulnerable people particularly will benefit, especially those without financial or technological means to shop around.

However, Covéa’s Gearey doesn’t think there will necessarily be less incentive to switch. “With... increasingly complex data sets that can give greater understanding almost down to individual consumers there could still be a degree of variation in price.”

Comparison sites evolve

If price becomes less of a factor, where does this leave comparison sites? Overwhelmingly, survey respondents thought these sites would still influence the purchase of home and motor insurance, though almost half (48.1%) thought this influence might diminish (See figure seven).

According to Admiral’s Egan, comparison sites still have an important role. They support market competition by enabling quick comparison of price and key characteristics of cover across a range of providers.

The FCA regulations, however, present an opportunity for comparison sites to evolve their services.

This was already underway at Confused.com in response to customers’ needs and other macro-trends, O’Shea tells us: “From offering more products, to providing more services, finding ways to address customer pain points in the whole insurance life cycle and working in partnership with insurance partners to help them become more customer-centric.”

Go Compare’s Fulthorpe agrees: “We’ve always had to evolve to make sure we meet customers’ needs. We were the first to factor ratings, which obviously sits outside of price, [and] informs customers of the quality of the product.”

What’s emerging is access to products through non-traditional channels. For example, Covéa is among several insurers partnering with ClearScore/DriveScore, the fintech that pioneered free credit scores and reporting for consumers. “Ten years ago, I suspect someone would have looked at you and said I’m not quite sure how you sell or promote insurance with someone providing credit scores,” explains Gearey.

“It is how insurers start to think about their business model: where they can extend their distribution reach to wherever the consumer is at a point in time when they recognise their risk need so that you can meet that need in as frictionless a manner (for the consumer) as possible.”

A recent development is the concept of ‘value exchange’ whereby the customer is willing to disclose useful data about themselves, in return for some form of discount or added value.

Gearey is convinced we will see more bespoke consumer propositions made available through multiple channels at the exact time the customer needs to be on risk. “Value exchange will become very important as consumers become increasingly aware of the importance of their data and insurers become more adept at offering viable returns for access to said data.”

Market advantage

Removing the incentive of discounts to attract new clients changes the dynamic in attracting and retaining customers. Markerstudy’s James argues it gives a relative advantage to big brand names with large existing books and will, therefore, reinforce those brands.

“The competition to attract new customers is fiercer, as more actors fight to win fewer potential clients, with the value of those customers gradually increasing as people get used to it not being worth changing policies. Insurers are therefore motivated to keep the clients they win as long as possible.”

“The cost of client acquisition will likely lead to a consolidation of actors in the market, which will indirectly consolidate brands and solidify their reputation,” he adds.

“On the flip side, actors who have no existing business will be able to discount heavily and make the market very competitive. However, those competitive prices will be for brands that have no reputation. There will therefore be a wider spread of prices, with a greater price differentiation according to brand.”

James also warns there may be unexpected changes in distribution channels due to the separation between big-brand direct insurers and those entering the market and pricing competitively. “We may see a proliferation of small brands, such that it will be hard to tell the difference between products.”

Meanwhile, too, Abacai’s Hay points out that, post-reform, more incumbents have launched new brands or are brand-stacking on comparison sites. “This reduces the customer’s effective choice, and we don’t see any real difference in their product propositions.”

Similarly, Blackham says: “There has been an increase in tweaking existing cover on comparison sites by including add-ons and calling it a new product, but I don’t think this will ultimately meet the underlying customer need for innovation – and it may even struggle to show fair value and consumer duty.”

Insurtechs to increase influence

Over three-quarters of survey respondents believe insurtechs will be more influential in future (See figure eight).

Confused.com claims to have helped more insurtechs and smaller players enter different insurance lines in the last 12 months than ever before, as they realise they have even more chance of competing without the distraction of making changes on a large renewal book.

“The ban on price walking will help level the playing field, encouraging new entrants in the market. With less switching, it will challenge big insurers to keep customers front of mind, making sure they offer customers the best value and service. Insurtechs naturally have the upper hand with their customer-centric approach and true value they’re already driving in the sector,” argues Cuvva’s Tomlinson.

Hay concurs: “We are trying to innovate for the benefit of the customer: subscription products where we are removing credit-charging, behaviourally-driven products where price depends on how well you drive, or flexible add-on packages that are tailored to individual circumstances.”

Technology will drive innovation and create more value and brand loyalty. Many of these innovations will come through using live services such as telematics (linking with other forms of mobility and geolocation-related services) and linking insurance with everyday life and making insurance protection easy.

Will the end of dual pricing ultimately improve customer loyalty? According to PayPal’s Belloc, if an insurer can make the customer feel it is on their side, they will be less inclined to look at competitors and more resistant to external offers. Making better use of customer data to provide real insights into the exact product and service each person requires will strengthen that relationship. 

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