The CEO of one of the biggest brokers in UK insurance has delivered a stark assessment of the ever-deeper cuts being made to the product coverage of personal lines insurance in pursuit of the cheapest prices.
Speaking at a Chartered Insurance Institute event entitled “Transparency and Insurance: What can be done to close the expectation gap?”, as reported by Insurance Times, Peter Blanc, CEO of Aston Lark group, was critical about the worrying trend in insurance to strip out more and more of the coverage that policies include to be able to deliver cheaper prices.
With the dominant distribution channel - outdated price comparison websites - conditioning customers into solely searching for insurance that is cheap as opposed to actually meeting their cover requirements, Blanc describes the escalating situation as a “horrible problem”.
The ever-stronger demands from PCWs to sell “cheap insurance” is causing insurance providers to use the levers that they have at their disposal to reduce prices, says Blanc, namely stripping out more and more cover to bring costs down. The impact of this, however, is consumers not being aware that the products that they’re being sold might not contain the coverage that they may have assumed would be there as standard.
“People get away with, frankly, providing the minimum level of cover that they have to provide in order to get their Defaqto rating. But fundamentally, what started out as a great idea ends up being dumbed down into a not particularly good product.”
Peter Blanc, CEO, Aston Lark
The ‘hollowing out’ of insurance products - reducing the amount of coverage that they include in order to hit a price point - has become one of the biggest issues in personal lines insurance yet the vast majority of consumers just aren’t aware of it.
The marketing arms race between the ‘big 4’ aggregators reminds us daily that “cheap” is all that we apparently need, with barely a mention of the actual purpose of the thing that we’re buying. As a result, consumers largely choose based on price without considering what they would actually need should they ever need to claim. Providers - through necessity of using those channels - have to sell cheap products without ever being particularly vocal about their coverage.
It is a recipe for disaster - seriously lacking in transparency at best, and certainly, in some cases, bordering on misleading.
Chartered Insurance Institute
The Chartered Insurance Institute recently published a companion to their Code of Ethics, specifically setting out the duties that insurance providers have when explaining products to consumers - read their guide here. Their CEO, Sian Fisher, issued a call-to-arms to the insurance industry to turn this situation around:
“When people buy insurance, they are buying a promise of help when things go wrong. But too often, there is an expectation gap between what customers thought that promise was and what the provider intended. To improve trust, we must understand exactly what leads to that gap, and how we can reduce it together.”
Sian Fisher, CEO, Chartered Insurance Institute
We set up Honcho specifically to help consumers to buy the right insurance for their circumstances at the best price, and not by chasing the flawed end game of ‘cheap at all costs’. We ask our customers to tell us specifically what they want their insurance to cover, and our insurance providers respond directly with products that match that ask.
Our Honchometer ranks the results by ‘closeness of fit’ and not cheapest first, meaning savvy insurance buyers have the comfort of knowing that the insurance cover that they’ve bought will actually fulfil its intended purpose should it ever be needed.
“The dumbing down of insurance cover to deliver cheap prices is one of the biggest problems in insurance, yet price comparison websites have such a vested interest in perpetuating their ‘buy cheap’ messaging that consumers are generally unaware of it.
“Thankfully there is a better way, and our customers are already telling us that buying “best” rather than “cheapest” is the way forward. Last month over 90% of our customers chose to buy the product that was the closest fit to their needs, meaning they’ve actively considered what their insurance requirements are and have bought accordingly.
“As for brokers, they are only doing what they’re being told by the PCWs, and our alternative distribution channel is giving them an opportunity to return to their core principles of quality underwriting and the delivery of products that actually do what they’re intended to. Its a win for both.”
Gavin Sewell, CEO, Honcho