Transparent or negligent?

James Watson

June 23, 2017

James Watson, sales and marketing director at Paymentshield, provider of home insurance to the mortgage intermediary market

When the FCA consulted on new rules and guidance for general insurance renewals, the authority was intending to address industry-wide concerns about levels of consumer engagement, as well as the treatment of consumers by firms at renewal, and the resulting lack of competition.

Following the consultation, new rules were proposed across all general insurance markets which required firms to disclose last year’s premium at each renewal and introduce text on communications to encourage consumers to check their cover and shop around for the best deal at each renewal. An additional prescribed message must appear for consumers who have renewed with them four consecutive times encouraging them to research alternative policies.

Transparency from financial services providers is essential and something that must be encouraged, particularly if the industry is to uphold consumer trust. However, while these guidelines have the best interest of consumers in mind, is there an underlying risk that they could fuel bigger financial issues in future?

While transparency at renewal arguably bolsters healthy competition within the market and helps consumers avoid paying over the odds, it can also put them in danger of purchasing a policy that doesn’t meet their needs. This is because the new prescribed wording for policy holders of four years states: “You have been with us a number of years. You may be able to get the insurance cover you want at a better price if you shop around” – a clear focus on price as opposed to ensuring the customer has adequate cover.

However, there could be crucial differences between a product that’s been tailored by an adviser to meet their exact requirements and a cheaper product found online which offers with less cover. A client shopping around and choosing an inadequate policy could mean the difference between being inconvenienced and potential major financial loss – it’s that serious.

What’s more, not all customers are price driven. YouGov research carried out by Paymentshield found that 43% of people said they’d be given confidence in a policy providing the highest level of features and benefits but, seeing as the average consumer won’t have the expertise to accurately compare two policies like for like by focussing on price alone, the regulations could be leading many customers away from the high level of protection they actually want and often need.

What’s more, for intermediaries, a client switching from a policy arranged by them to a cheaper online policy would damage their income stream generated by general insurance. That’s why advisers should capitalise on the fact that consumers are concerned about the features of insurance policies and take renewals as an opportunity to further demonstrate their expertise and the value of their advice.

While the new regulations undoubtedly present a possible risk, encouraging industry competition is a step in the right direction in terms of bolstering adviser and consumer confidence. If advisers take advantage of the opportunity presented by renewal times to have quality conversations around policies with their clients, both parties will benefit and transparency can be celebrated.

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