Has the Fincial Conduct Authority's review into the mobile phone insurance industry gone unnoticed, both in the UK and across the continent?
Research has found 79% of adult smartphone users have their phones with them for 22 hours a day and that 80% of users check their phones within 15 minutes of waking up, according to a report by global market research firm IDC Research, sponsored by social network Facebook, which examined habits of smartphone users.
The Financial Conduct Authority review last June recognised the importance of the mobile phone insurance industry, revealing 92% of consumers rely so heavily on these devices that they recognise the need to protect against loss, theft or damage. But the report also found consumers feel let down by some insurers.
The FCA review identified a gap between what the consumer thought they were getting and what the insurer was delivering, and made recommendations for the industry to clean up its act. But where are we almost a year later? Are insurers making it clearer and easier for consumers to purchase MPI?
Gadget insurer Square Trade and technology logistics firm Tech Data recently joined forces to provide MPI with a quick turnaround in handset replacement anywhere in Europe - which is great news for customers.
Insurers Supercover and Allianz say this is nothing new, and say they offer similar benefits, while Mohammad Khan, a PWC insurance partner, says: "This form of partnership is unusual in that insurers usually do it all themselves without the need for a tech partner."
But KPMG regulatory partner Nick Henderson says getting hold of a replacement phone quickly is somewhat missing the point. He says the FCA wants insurers to address the key consumer concerns, adding: "How quickly is a claim processed and handled? What are the barriers to claims acceptance? Speeding up the back end processes, knowing what the exclusions of the policy are - these are the things at the heart of the customer [need] and are what firms should focus on."
Unclear terms and conditions
Kevin Gillan, managing director for Europe at Squaretrade, believes the FCA has done a good job in trying to raise standards in the MPI industry but he says the terms and conditions of MPI is still very ambiguous.
"What's a lost phone? What's a stolen phone? It's not clear from a customer point of view. When it comes to claim and you're asked ‘how did you lose you phone or how was it stolen?', if you're not careful what you say, that claim might not go through," he warns.
He adds that around 70% to 80% of the claims are for accidental damage to phones, yet the majority of claims Squaretrade pay out for are theft claims. He says: "That's where the premium is."
"The psyche of insurance is not on the side of the customer. The insurance industry doesn't want you to make a claim and, when you do, some can make it difficult. It tends to set itself up with a minimal amount of claims."
Changing consumer perceptions
Changing people's perceptions of the industry is tricky, suggests Supercover Insurance director Carmi Korine: "When some operators aren't being transparent, it gives an overall poor impression of the industry. When people have a bad experience they think it's systematic throughout all operators," he explains.
But according to Simon Cook, head of sales and marketing, Corporate Partners, Allianz Insurance, sales teams are trained in treating customers fairly - and as such there are now fewer instances of mis-selling.
Cook adds: "There is an increasing trend for banks to unbundle MPI from their premium account offerings to ensure customers make a conscious decision as to whether they need the product. [It also means consumers] can better relate to the value proposition."
Diverse distribution channels
Henderson, meanwhile, expresses concerns about the current market's diversity of distribution channels, and suggests this raises the question of "control".
"With continued FCA scrutiny around this type of product, the way it's distributed should be controlled. When you have large retail outlets distributing insurance where its primary role is not selling a financial services product, you have a challenge in training staff in the way products are sold."
Cook suggests that the industry adapts to these new types of distribution channel. "Insurers must ensure their claims journeys are predicated on making life stress-free for the claimant," he says. And as there is an increasing trend amongst consumers towards purchasing insurance in a multi-channel format, MPI providers may have to invest in training new types of sales staff.
The future of MPI
As for the future of the MPI market, Cook says: "Consumers will seriously consider the consequences of life without access to the wider world and attribute real value to the MPI proposition. They will increasingly think about digital asset protection."
Khan says that the way MPI firms design products and handle claims is "evolving". "Insurance claims from mobile phone models with big screens went through the roof last year, as the large glass [screens] are very expensive to replace."
Cook predicts devices will become more robust. "Materials used in the manufacturing process will be more shock resistant and screens will be less likely to crack or sustain damage," he says.
However, he expresses concerns that the market could increasingly be targeted by "criminal elements well versed in building networks of bogus claims activity."
He adds: "All elements of the supply chain [need to be] working in harmony and with the same level of dedication to deliver the customer promise. Insurers need to regularly engage with customers to ensure their evolving needs are being met and anticipate how they will change in the future to ensure MPI propositions remain fit for purpose and competitive, making MPI affordable and still provide a great service."
Is there any more clarity for consumers? The FCA assures Post Online that it will revisit its review into the product: "We do intend to follow up on the original MPI report but this work has not started yet." So it seems firms still have time to impress the FCA and, more importantly, the customer.
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