May 9, 2023 5 min read

Have Insurers been Honest with Consumers?

Big changes are underway in insurance. So what do consumers think of those changes? Surveys often show strong support from consumers for the biggest change of all – the move from pooling to personalisation. Yet why is this so, and can we trust what these surveys tell us?

Surveys need to be Scrutinised

Insurers need to be confident that the digital transformation happening in the sector is supported by consumers. It’s an expensive project and needs to succeed where it matters most, with consumers continuing to buy the product.

This is what a key narrative has taken hold in the market, that these changes make insurance fairer. And that ‘fairer narrative’ is justified on two grounds, firstly that of adverse selection, and secondly it’s what the public wants. It’s the second justification that I’m going to focus on here.

That confidence in the public’s support for the move from pooling to personalisation is influenced by surveys that point to consumers wanting their premiums to be based upon their level of risk, not other people’s. They want their insurance to focus on their losses, not other people’s.

My first reaction to such surveys is to dig deeper into who did it and how. So I’m interested in exactly what those surveys were asking of consumers. Were the questions too leading, too narrow, or both? Did the overall survey present those specific questions against a context overly inclined this way rather than that way? And which consumers exactly were being asked? A properly representative sample of the public or a small group bound to show support?

Good Surveys

Sometimes I find the survey to be pretty hollow and easily dismissed. Yet sometimes the survey is pretty robust. Take some independent research commissioned by the ABI in 2020 into consumer attitudes towards insurers’ use of their data. I was happy with the organisation undertaking it and the way in which it was conducted. Yet this was one of their findings:

“General insurance customers are more likely to say that they would prefer to pay for insurance based on their exact level of risk...”

On the face of it, this shows strong public support for one of the key attributes of personalisation. Speaking about this with academics, I’ve come to understood that personalisation is essentially a big social trend that is influencing lots of public perceptions about what they want and have come to expect. Insurance has just been caught up in all this.

Yet insurance is different. The sector’s digital transformation is not just changing distribution, service levels and the like, but the product itself, even the market as well. So why are consumers thinking the way they are?

How Consumers Think About Insurance

The answer to this may lie in how consumers have been taught to think of insurance. Two things stand out here.

The first is that people have for a long time been told in sales and marketing material that insurance is something that would help them. And this help is personalised, with messages along the lines of “you will be better off with insurance” and ‘”we are here to help you”. None of these messages have been about “we will be better off together” or “we will come together to help you”.

The second is that people have been taught to weigh up different options for insurance in terms of price and price alone. The message is that this policy is better because its price is lower. Insurers have then devoted considerable energy to move their offer as far up the quote screen as possible, using practices such as lifetime value modelling that are now banned.

What this tells us then is that consumers have been told to think of insurance in very personalised terms. And I would judge this to have been the case from roughly the early 1990s onwards, so around 30 years or so. A long time. Any messages that talk about (or even hint at) how insurance has worked for a couple of centuries, as a form of collective risk solidarity, are long gone.

Lack of Relationship

What’s more, the age in which insurance was largely undertaken as some form of a mutual association of like minded members who could relate to each other in some recognisable way – those times are also long gone. Insurers now are centralised and professionally managed bureaucracies, reliant on their brand for recognition and affiliation.

As a result, it is hardly a surprise (in fact no surprise at all) that consumers, when asked if they’re prefer their insurance to be based around their risk profile and losses, rather than as part of a wider pool of people, always chose the former. Why should they pay for the losses of their accident prone neighbours? This is a no brainer, if all you’ve ever been told about insurance is orientated around the individual.

What also contributes to this is the common misconception that you (as a consumer) are more responsible than other consumers, that you’re a better driver, a more careful householder, a healthier person. And these views are so common as to be statistically impossible – someone has to be less responsible, a not so good driver, etc. We just don’t want to admit to being one of them.

What this then creates is a comfort zone around the prospect of paying for only your own risk. In that comfort zone, the prospect of your risk resulting in a loss seems remote, as you’re better at avoiding these things than others.

Losses Happen

Yet what I’m not convinced even good surveys then go on and explore with consumers, is what happens what a loss does occur. Consumers may not want to pay for other people’s losses, but find it hard when that then means no one will want to pay towards their loss.

That’s not been part of how they’ve been sold insurance, both literally and figuratively, for a long time. Yet it is the way in which insurance is developing.

Is this a problem then with how insurance has been marketed and sold over the last few decades? It is in part, but it is also about the way in which insurance has become more focussed on price and less personal in terms of relationships. This feels less like the policy being mis-sold and more like insurance per se being mis-sold.

Serious Research Needed

Let’s pull things together. If over time consumers experience not just the upside of insurance personalisation (I pay for my risk) but the downside as well (I pay for my loss), then attitudes towards the market will sour. The public will feel that insurance has been mis-sold to them, but it will be too late for them to do anything about it. Not a happy situation for a market to find itself in.

This is why some serious research is needed into public perception of insurance personalisation and attitudes to the outcomes that are progressively building. A further survey on its own is not enough. Something with more scope and depth is needed, and is best undertaken from within academia.

I would not be surprised if something more nuanced around personalisation comes out of such research. I’ve written before about strong reciprocity and what it means for thinking about the future of insurance (more here). We may find something on this coming out of such research. Yet the important thing is that a proper piece of research is put together and undertaken. Only then will the future of this so vital sector take on a clearer shape.

Duncan Minty
Duncan Minty
Duncan has been researching and writing about ethics in insurance for over 20 years. As a Chartered Insurance Practitioner, he combines market knowledge with a strong and independent radar on ethics.
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