The problem with pricing

Mortgage Introducer

March 6, 2019

Paul Thompson (pictured) is founder and chief executive of Cavere Intermediary

The FCA market study into insurance pricing strategies and how they impact customers has shone a spotlight on one of the biggest reputational risks facing our industry since the PPI scandal. I recently read a quote in The Independent that went “you should never be a loyal customer to an insurance company.  Never.”

Dual pricing, online discounts, new customer deals, to the public this simply translates to the view that in insurance loyalty is not something valued, but rather punished. Existing customers appear ripe for financial exploitation, whilst new customers are worthy of the best deals. I ask myself why did anyone think this approach was a good idea?

Selling to existing customers is one of the most effective, and easiest, ways to increase revenue and profitability. Many studies demonstrate it’s more cost-effective to generate revenue from existing customers than it is to go out and find new ones. However, for many years the insurance industry has taken the opposite approach, a relentless drive for new customers driven by price, has resulted in massive fluctuation in premiums and a lack of focus on quality.

The result is high customer churn. Churn to the extent we have now, where a customer can get a price that’s below the true cost of the risk in the hope they will simply stay with the insurer through inertia when the price doubles at renewal is bad for everyone.

The market study could lead to some much needed reform. We need a return to realistic pricing for risk, whereby customers get the right cover at the right/true price from the outset, so when the premium doesn’t go up or even reduces at renewal they feel valued and have greater peace of mind.

It’s Cavere’s experience that customers are happy to pay a little more for peace of mind, knowing an advisor has taken the time to help them get the right cover for their needs. Our retention rate of 92% stands as testament to the success of this approach.

As intermediaries you have long understood the value of looking after your loyal band of clients, let’s hope that in time loyalty will be rewarded by all insurers. In the meantime make sure you’re working with a GI provider with strong insurer relationships, sound retention strategies and the expertise to deliver quality cover at not just a right first time price, but a right long term price.

Are you an enlightened broker?

I’m still dismayed by the number of brokers and intermediaries I meet that still think selling GI is not worth the effort, or that they cannot compete with price comparison sites. For the brokers we work with at Cavere these things are not an issue. Why? Because they are enlightened. Let me explain…

I was recently asked what I consider to be the biggest threat to brokers in 2019, my answer was the threat of missed opportunities. Too many opt not to sell GI, due to perceived burdens of regulation, training, and competition, rather than invest in doing it right.

We champion the enlightened – those that see the benefits of selling GI in terms of meeting the full range of client needs, and realise that customer experience and retention offers the best route to sustainable growth. I believe that those that who invest can and do steal a march on their peers.

Turn threat into opportunity. With an unstable economy, Brexit looming large, and a bright light shone on unfair pricing strategies, the ability to differentiate will improve as customers realise the value of trusted counsel.

This creates a great opportunity for the enlightened with a strong GI provider behind supporting them with training and delivering the fastest possible quote, buy and renewal solutions, as well as strong relationships with leading insurers.

Take the path to enlightenment.

Flood cover must be seen as standard

FloodRe made a return to the headlines in January when it announced it had cut the reinsurance premiums it charges to insurance companies thereby lowering the cost of flood protection for those most at risk of flooding.

As one of the first to provide FloodRe to brokers we often get asked if more still needs to be done to raise awareness of the importance of affordable flood insurance. My answer is always that flood cover should no longer be considered a non-standard purchase, it must and can be written as standard.

Unfortunately, as there’s no consensus amongst insurers or a standard flood risk database, the result currently is that some insurers class an area as a risk when others don’t. This can undermine the intermediary’s ability to find the customer the right product.

It also highlights the importance of having a GI provider with the experience and relationships with insurers that back into FloodRe, rather than those that accept or decline flood cover based on potentially inaccurate historical data.

I urge intermediaries to not shy away from flood risks, cover is standard and available and it’s no different to selling normal buildings and contents, you just need to use the right provider.

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