Transparent or negligent?

James Watson

June 5, 2017

reduced income

James Watson is sales and marketing director at Paymentshield

In December 2015, 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 and a large-scale trial of three firms in the motor and home insurance markets, new rules were proposed across all general insurance markets which required firms to:

  1. Disclose last year’s premium at each renewal
  2. Introduce text to encourage consumers to check their cover and shop around for the best deal at each renewal
  3. Identify consumers who have renewed with them four consecutive times and give them an additional prescribed message encouraging them to research alternative policies.

Last month saw the introduction of these renewal transparency regulations but, while the guidelines have the best interest of consumers in mind, is there an underlying risk that they could create issues further down the line?

Transparency from financial services providers is essential and something that must be encouraged, particularly if the industry is to uphold consumer trust. However, it must be provided with caution.

While transparency at renewal bolsters healthy competition within the market and helps consumers avoid paying over the odds, it does put them in danger of purchasing a policy that doesn’t meet their needs.

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.

YouGov research carried out by Paymentshield revealed that 43% of those surveyed said the ability to match a quote to their renewal price would encourage them to buy a particular home insurance policy, demonstrating the nation’s sway towards value.

Despite this, the same number of people (43%) said they’d be encouraged by confidence in the policy providing the highest level of features and benefits and, seeing as the average consumer won’t have the expertise to accurately compare two policies like for like, this is where the prescribed wording could cause problems.

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

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 demonstrate their expertise and the value of their advice.

As well as seeking professional advice when purchasing financial products, industry changes such as these from the FCA validate one of the benefits of working with a panel provider. For intermediaries, a client switching provider at renewal would damage the income stream generated by general insurance. However, by working with a panel provider, the client is able to access alternative insurers to potentially source a lower renewal premium if needed without jeopardising their cover and safeguarding their commission in the process.

Some providers, including Paymentshield, even offer an auto-rebroke function, which automatically carries out this research at the time of renewal, saving advisers valuable time and arming them with the intel to approach clients with a potential saving.

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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