Conduct Matters for UK General Insurance under COVID-19

In just a few weeks since our last blog, activities for most people and businesses have either changed dramatically or have ceased completely. At the same time the General Insurance industry has needed to continue to provide relevant cover, policy renewals and claims handling services to customers.

While the expected FCA Market Study final report on Pricing Practices is subject to understandable delay, to July 2020 at the earliest, the three broader issues we highlighted in our last blog are brought into sharp focus by the COVID-19 crisis:

  • Business Model – how firms make money
  • Operations – how firms engage with customers
  • Culture and Ethics – how firms behave and how their governance systems ensure proper oversight
What should firms be doing now in this period of crisis, cognisant of both conduct and prudential
regulatory perspectives?

 

Business Model 

It is a truism that the strength of a firm’s business model is challenged most at times of crisis. This raises the question of how firms can best position themselves to be sustainable and successful for the longer term i.e. what will keep existing customers paying for a firm’s products and services and attract new ones?

In the US, Australia and South Africa some insurers are offering rebates on premiums paid where the risk is reduced e.g. for motor or travel insurance due to government restrictions. Other forms of financial relief for customers should also be considered such as extension of existing policies, annual premium payments by instalments and/or deferrals for renewals at minimal or no cost to consumers. 

Measures such as these are likely to have a positive impact from a commercial perspective by increasing customer retention and also demonstrate to regulators a firm’s commitment to good conduct. Firms that are able to seize the initiative by taking steps now that increase their product and service offering’s value to customers are likely to reap the rewards from a more loyal existing customer base, as well as demonstrating a customer-centric approach to the public and potential customers.

 

Operations 

In our last blog we cited our work with Consumer Intelligence which demonstrated that a proactively transparent approach in renewals communications is likely to increase customer loyalty and retention. The impact of COVID-19 has brought firm’s vulnerable customer strategies and processes into sharp focus, with a much-increased vulnerable customer base. A proactive, adaptable approach to the identification and treatment of vulnerable customers is therefore essential.

A poor conduct example from a vulnerable, “digitally excluded”, customer perspective is having to opt out of an auto-renewal via an online chat instead of being able to contact the insurer’s call centre - or better still, being called proactively. In a similar vein, a longer cooling off period could be offered, particularly where the quoted renewal price has risen considerably.

In some cases, firms are not equipping themselves adequately in claims handling ability to deal with anything other than emergency cases. With operational resilience being a key theme for regulators, attention is needed here, not forgetting remote access security measures around access to and use of customer data.

 

Culture and Ethics 

The current crisis provides customers and regulators the opportunity to see how well firms’ high level statements of good intent and principles translate into everyday attitudes and behaviours across an organisation and its lines of business. A current live example is the interpretation of policy wordings to accept or deny certain claims for business interruption. Another is consideration of complimentary additional cover for key workers. A major concern for insurers is the impact on shareholders and solvency ratios. In this latter respect the PRA action to strongly encourage insurers to suspend dividends and senior manager bonuses helps firms put policyholder protection and customer interests first at this difficult time. Businesses which genuinely adopt a “customer first” approach and ensure that their stated culture remains intact at difficult times will also benefit from more motivated and loyal employees.

 

Summary 

Firms with a well thought out, integrated and consistent strategy to be financially, operationally and culturally resilient, who put the customer first at times of crisis, will have considerable competitive advantage in achieving sustainable success for the longer term. The internal and external communications activity will also be more positive and authentic, including engagement with regulators on all matters such as the firm’s pricing practices.

Sicsic Advisory is currently supporting firms to develop an overall strategic approach to these matters. Our experts are on hand to talk through how the numerous challenges firms are experiencing in the current crisis can dealt with in a co-ordinated and sustainable way.





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