Sep 30, 2022 2 min read

Research finds Challenges Ahead for Digital Insurance

An independent think tank has found that people face significant hurdles to engaging with the biggest trend in financial services. As that trend is central to the digital future of insurance, their research gives insurers much to take on board when weighing up products, pricing and distribution.

In the end, it's people that make the choices.

The David Hume Institute (DHI) looked at the way in which financial products are increasingly being built around the transfer of risk from the institution to the individual. This is called the Great Risk Transfer for short. In insurance, it takes the form of personalisation, at the moment in pricing but ultimately in the policy itself and the services derived from it.

The DHI wanted to know whether the public had the knowledge and capacity to properly engage in this big financial trend, and whether they had access to information and guidance they could trust. Four subject areas were addressed: pensions, work, health and insurance.

This sort of research matters to insurers because their digital strategies rely on a public willing and able to buy their products. To paraphrase an old saying, you can bring water to the horse, but that doesn’t mean the water will be drunk.

What DHI found was that people had little awareness or understanding of the changes taking place. And with the current economic situation, the research established that they have limited capacity to take on board those changes. So while the thinking behind the changes driving risks transfers like personalisation was framed around choice and opportunity, the reality for many people is that they do not experience more choice, just more risk and less of a safety net.

A Stark Picture on Trust

One factor that came out strongly in the DHI research was just how much people trusted people like Martin Lewis and organisations like Citizens Advice. In contrast, much lower levels of trust were found in businesses selling financial products and offering guidance. Some people explicitly stated that businesses were likely to be providing biased information in order to sell products.

It’s worth bearing in mind therefore that when organisations like Citizens Advice challenge the sector on things like the loyalty penalty and the ethnicity penalty, the public are much more likely to believe Citizens Advice. And if that is picked up by politicians, the sector will be on a back foot when dealing with those challenges.

Clearly, personalisation is a long term trend that will only slowly make itself apparent to the insurance buying public. DHI found little appreciation of the changes it is having. That said, what is more apparent to the public are things like price walking, which personalisation clearly facilitates. The Chartered Insurance Institute’s Public Trust Index established just how strongly the public felt about price walking.

My point here is that people are less interested in the process that is personalisation and more interested in the outcomes from personalisation, like the loyalty penalty. Outcomes like that tell stories that people can relate to their own experiences more easily.

Bring People with You

The DHI research is wide ranging, with insurance as only one of four topics. Yet its overall message is very relevant to insurers. If you want people to join with the sector on this great change in how insurance is priced, packaged and distributed, they need to be shown how they will benefit, by people and organisations they trust.

This in turn points to the need for greater engagement with organisations like Citizens Advice, with consumer champions like Lewis, which in turn points to the need for practices like price optimisation, for outcomes like the ethnicity penalty, to be addressed vigorously.

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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