With the insurance industry suffering from reviews, increased legislation and the need for additional transparency, Brendan Keane looks at how the motor market can adapt and change to keep one step ahead.
Over the past few years, motor insurance and the resulting claims, like other financial and legal expenses offerings, have been the focus of a series of government reviews and recommendations. Taking a look at the practices of all stakeholders within the market, these reviews have predominantly been born out of heightened importance to ensure transparency and best interest for the end user — the customer.
However, with a constant potential for change in the regulatory landscape, recent years have also demonstrated the need for adaptability for all companies choosing to operate in this market. As the landscape develops, the pressure increases to address escalating claims costs and ensure a satisfactory outcome for the customer.
Brokers also continue to play a hugely valuable role selling policies to the end user and generating cost effective distribution, while remaining resilient in the face of direct sales from insurers. As the landscape evolves it is important that brokers and insurers explore solutions for business growth that suit all parties and recognise the value of a true customer 'brand' experience.
Recent reviews of the motor market have, on one hand, focused on the customer and, on the other, looked at stabilising the financial services industry as a whole. As such, the industry has needed to keep abreast of issues and adapt accordingly. Time has been taken to grasp all aspects of treating customers fairly and while the implementation of Solvency II seems a long way off, the scope of the changes required means companies are already taking action.
Having an impact
The Treasury's investigation into a new approach to financial regulation and the role of a proposed Prudential Regulation Authority is also still unknown to insurers. The Young review tackling the UK's compensation culture and regulation of referral agencies involved in personal injury claims will also have its impact — as could the Transport Select Committee's review of claims costs.
Now considered as one of the most mature financial industries in the world, the insurance sector has also encountered certain changes of direction in distribution over the past 15 years and nowhere has this been more evident than within the area of motor. In the past, sales through brokers accounted for 100% of distribution. Identifying an opportunity to create a service and enhance that with a genuine 'brand' experience, brokers led the way in offering a personal and local approach for customers. But, as the market grew and technological advancements opened the door to aggregator sites and quotations direct from providers, distribution via brokers reduced.
Recent reports show broker distribution to be approximately 30% of policies sales. Where brokers once monopolised the channels to market, they now must compete for custom and revenue with other sources. As a result, the industry has turned to questions of cost and revenue, leading to the search for alternative potential income streams, often readily achieved via third parties and referral commissions.
This growing competition for custom has created increased commoditisation within the motor market as a whole. It has also contributed to a rise in procedures and practices that are often recognised for driving up claims costs and impacting on insurance policy premiums for customers yet, ironically, continue to reduce profit for the industry.
This short-term focus on cost and revenue has, therefore, diverted attention from the original premise of brand experience and has resulted in a disjointed customer journey. Going one step further, the strain that has been put upon the relationship between insurance provider and distributor has meant that original key differentiators between broker brands have become more blurred as a fight for customers and revenue becomes ever more intense.
The market now has a real opportunity to evolve through foresight. Driven by the need to source a sustainable revenue solution and a desire from the broker to maintain the provision of a differentiated 'brand' experience for the customer, focus now turns to partnerships and processes. The right partnership with panel insurers and the right first notice of loss process can form a positive step towards building a long-term sustainable business for both parties. However, such culture shifts do not come without their challenges and it falls upon all parties to place the customer at the forefront of all decisions if the market is to evolve.
New ways of working
Over recent years, new ways of working in the industry and real third-way alternatives for the insurance claims process have been explored by stakeholders. Following a shared approach towards achieving transparency for customers and cost efficiency for insurance companies, such developments strive to bring down unnecessary claims costs, which in turn drives down the cost of policies and offers a clear differentiator for brokers.
Such models have proven popular among insurance providers over the past year and, in some instances, have reduced claims costs by up to 50%. With savings this large there is real potential to fund a number of exercises that can improve everyone's experience, broker, insurer and customer, going forward.
By controlling the process of claims management and resolution from the outset and finding working relationships that capture claims early on with FNOL, both brokers and insurance providers can access opportunities that enhance the experience for the customer. This can only be a good thing as such third-way alternatives, if put into practice effectively, can increase efficiency and offer real alternatives for longer term revenue needs without sacrificing commercial returns offered by past models of referral.
Brendan Keane is head of insurance development at Enterprise Rent-A-Car
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