Roundtable: Dual pricing and loyalty

Irritation and resignation were present in equal measure when a group of insurers, brokers and technology specialists sat round the table just days after Citizens Advice launched its super-complaint to the Competition and Markets Authority over what it calls the “loyalty penalty” in five sectors, including insurance.

Originally, the meeting was supposed to discuss how to move the public conversation away from price to build greater brand loyalty in personal lines insurance. But the super-complaint blew this agenda out of the water, dragging the discussion straight back to premiums and the long-running concerns about dual pricing.

The industry is going to have to look its critics in the face and tackle this issue: the CMA is bound to investigate the complaint as Citizens Advice is one of a handful of organisations that has a special status allowing it to trigger full-scale investigations.

If imminent investigation was not bad enough, Prime Minister Theresa May waded into the debate in her speech to the Conservative Party conference a week later: “Companies charging their customers a ‘loyalty penalty’ should know: we will take action.” By adopting the language of the complaint, the Prime Minister has made it clear what she thinks the outcome should be.

For Christopher Digby, associate director at Howden Private Office, there was an air of inevitability about the investigation and this pressure for action on dual pricing: “The biggest problem for consumers has always been around existing policyhoders and new customers. So the fact that it hasn’t happened before is surprising, especially with what has gone on with the energy and utility companies.”

This feeling of inevitability and resignation was quickly replaced by mounting irritation on all sides, not least because the complaint targets five sectors – mobile, broadband, savings accounts, home insurance, and mortgages – that participants felt shouldn’t be amalgamated.

“It is unfortunate that insurance is being lumped in with certain utilities because that is devaluing the products we sell,” said Mike Crane, managing director of LV Broker.

“It is going to take some unpicking to understand which aspects of it are part of the competitive dynamics around new business, which it could be argued are healthy, and the parts of it which are about longevity [of customer relationships], which start to look more challenging,” added Crane.

Matt Cullen, head of strategy, data and analytics at the Association of British Insurers, said dual pricing was “very much on the agenda at the top level”. The ABI has promoted guidance on pricing and dealing with vulnerable customers. “The industry has done all it can while staying within existing competition law,” said Cullen, adding further collective action presented “intractable problems”.

Zurich’s head of partnerships Phil Ost said insurers were adopting the ABI’s guiding principles but these were not moving things forward: “It is backing up and reaffirming what we were already doing.”

Steve White, CEO of the British Insurance Brokers’ Association, urged the industry to acknowledge the concerns that lay behind the Citizens Advice complaint.

“You have to accept that perception is actually reality. The tabloid papers are regularly picking up stories on price differentials and the regulator is responding to this. Andrew Bailey [CEO of the Financial Conduct Authority] has made it clear that pricing and use of data are his number one priorities,” he added, noting the FCA didn’t exclude regulatory action in both these areas.

White also challenged the language being used: “It is very unfortunate that this has been labelled a loyalty penalty. It isn’t really a loyalty penalty. It is a heavily discounted new business price. We need to somehow get that out into the ether. It is just what many other business sectors do.”

A tough message

This would be a tough message to get across, said Digby: “You talk about a discounted new business rate – which is accurate – but that means in year two, you have got to take the discount away. That damages the brand and undermines customer loyalty.” It also puts added pressure on brokers to find the lowest rate for clients: “If you don’t re-broke a risk, then what are you doing? You just become a post box for insurers. But if you do re-broke it, you are just driving the market down.”

Cullen said new business discounting was essential in a competitive market, a factor often ignored by the media: “It is hard for people looking in from the outside to understand that it is almost impossible from a first mover disadvantage perspective for insurers not to do it.”

Ost feared that regulatory intervention would damage the market. “It is a highly complex area. Something like home insurance has so many different features and risk factors. If the regulator wants to be more prescriptive, that will be very difficult. You will end up going back to tariff-type pricing.”

Digby said clarity and transparency were the answers: “The rate is the rate but this is the discount in year one; it will go up in year two.”

Helen Murray, chief customer solutions officer at Webhelp, said this had to be the way forward: “As a consumer, you do expect these things to be very visible and transparent. But insurance is more complex than a lot of other stuff we buy, so a lot of the work has to be about how you make it easier.”

For Phil Thorn, head of UK personal lines at Hiscox, a further factor had to be addressed: “Generally the noise from consumers around the whole issue is that they expect more and more. In particular, loyal customers expect rewards.”

This moved the discussion on to customer loyalty and the reasons why many people do not change insurers even when cheaper prices are on offer elsewhere. Cullen said the study that underpinned the super-complaint was “not a rigorous piece of work” as it failed to recognise some people preferred not to shop around.

Despite all the extra information presented to them, some customers opt to stay with an insurer they know and trust. “Customers do say: I want to stay with you and I am happy to pay more than the market price,” said Ost. “This moves the conversation beyond price to brand loyalty.”

Crane said good claims handling often inspired that loyalty, a theme taken up by Murray: “One of the challenges with insurance is that you buy a promise. If you have a claim and you have been dealt with really well, you want to be loyal. I understand that. It becomes harder with those who haven’t tested the promise.”

Major challenge

One of the major challenges in the personal lines market, where aggregators dominate most of the major classes of business, is explaining what is behind that promise, said Ost: “You can’t let the proposition breathe and that is a problem.”

Informing consumers is crucial if insurers want to move away from selling merely on price, said Cara McFadyen, strategic marketing manager for personal lines at Geo Underwriting: “The amount people are willing to spend is directly correlated to how educated they are about the things they are buying. Most people who buy on aggregators don’t have a clue about insurance. You move into the private client market and it is a completely different ball game. They understand what they have and what the risks are and are happy to pay more for the right cover.”

These different approaches should be seen as one of the strengths of the UK’s personal lines market, said Anthony Foster, head of broker performance management at Markerstudy: “Our brands are chalk and cheese in what they are trying to achieve and that is totally reflected in their pricing policies. That is one reason why we have the most competitive market in the world.

“The two brands we have on the direct side are totally different. They are positioned differently and they offer slightly different products. One promises no difference in renewal prices unless the risk changes. You see an immediate 15 point uplift in retention because there is better customer engagement.”

Participants agreed that another essential ingredient in the customer loyalty mix was to improve relations with customers, not just when they make a claim but every time they are in touch. There must also be a better focus on their desire for simplicity and an easy journey when buying or renewing insurance. This will pay off, said Emily Gates, marketing manager for UK General: “There is a lot to be said for convenience.

“We all buy insurance and we all know we want a convenient process because we are on the go all the time. We have the technology and have all these things at our fingertips. You get caught up in the moment and say I’ll just renew it. I’ve done it with my car insurance. It probably wasn’t the most competitive quote but I just paid it because the process was easy and quick.”

McFadyen said greater connectivity and use of apps could move the conversation on from its current focus on price: “There is a lot of talk about insurance being more than just risk transfer and becoming more about lifestyle”. She said the internet of things gave home insurers a real opportunity to engage more frequently with their policyholders: “It is about making them come to you rather than pushing information towards them.”

New tool

One new tool in the drive to simplify communication with customers is the Insurance Product Information Document. The IPID was seen as a mixed blessing by those around the table.

“You can’t sum up a 50-page wording in a policy document in two pages. You are dumbing it down,” said Digby. “The consumer is being tasked with reading the schedule, the statement of facts, a proposal form and wordings. What are they going to read? It is going to be the IPID because it has green ticks and red crosses and it is only two pages. We make it difficult for ourselves to point out the reasonable exclusions and so on. Why aren’t we creating something they will read?”

A more positive note was struck by McFadyen, who said start-ups were doing much better in creating simpler, more accessible policy wordings: “We actually wanted the consumer to read the wording. We knew we could do better.”

Liley urged insurers to look much harder at the overall customer journey, especially online, where the proportion of “dropped baskets” in insurance transactions far outstrips failed transactions in other sectors: “Insurers are really strong on data from an actuarial and pricing point of view but where we should be focusing our attention is on data about customer experience.”

Murray said insurers needed to pay much more attention to this: “It is not that the customer doesn’t want to have any contact. It should be about making sure that contact is a good experience. That is about simplifying the process and personalising it.”

This resonated with Thorn: “We absolutely must personalise the process and tailor the messaging.”

“Just be more human about it and be very straightforward and direct,” added Gates.

This could create opportunities for brokers, said Foster, as some customers still want a personal service: “We have seen fewer middle-of-the-road risks going through brokers. Brokers are having to increasingly add value by fishing around the edges of the core and seeing where they can add value, especially where the customer wants their hand held.”

McFadyen said, whatever route the customer chose, the key to moving the conversation away from price was to make an “emotional connection”, with “ease of contact, speed of resolution, consistency across all touch points”.

Cullen left the participants with a challenge: “Insurers should be looking to add into the proposition things that customers are genuinely interested in and get excited about.”

Achieving that would be a real win and a far cry from exhaustive – and exhausting – debates about dual pricing.

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