Bringing consumers on side with enticing, transparent products provides the key to boosting understanding of protection insurance. Richard Purcell and Blair Sievering report
When it comes to insurance, what you don't know definitely can hurt you. Sadly, it is becoming increasingly clear that there is a lack of understanding among consumers of what protection insurance does, as flagged by a report produced by The Syndicate, a research partnership between Hannover Re UK Life Branch and the Protection Review (see Consumer Confusion).
The same research, entitled Where Are We On The Consumer's Radar? Navigating A Route For Protection Insurance, highlights a number of areas where, as an industry, we could better engage with consumers, both before a policy is sold and once a consumer has bought cover.
The Syndicate research shows that 'easy-to-understand product information' is a key factor for consumers when buying personal insurance, second only to price. Efforts have already been made to simplify marketing and sales, but perhaps more intuitive product naming and labelling is also needed to boost consumer appeal and increase understanding.
Many consumers also have a price ceiling for protection products, with 46% willing to spend up to a maximum of £20 per month. A full, holistic needs assessment is a good way for consumers to determine the level of cover they need. However, not all will be able to afford the level of premium this implies. For these consumers, some cover may be better than none. So a basic form of cover could be made available, with clear, straightforward opportunities to upgrade the level or quality of cover if and when budget allows.
Some may say that engaging with consumers post-sale is a bad idea. It will remind them of how much they are paying each month, making them more likely to review and even cancel their policy. But instead of thinking of a protection policy as something that sits in a drawer for years on end, shouldn't we engage more to reinforce the value of the policy and build understanding?
Communicate the value
In recent years, providers have started to intervene at the point of lapse to ensure that policyholders know the options available to them to amend the policy rather than simply cancelling it. However, this approach is reactive and is often too little too late. We can do far more to engage with customers before they reach the decision to cancel cover.
The introduction by some providers of annual statements that summarise the type and level of cover is a positive step. This should also help address the concerning level of 'imaginary cover' that consumers believe they have in place. The Syndicate research shows that the level of cover consumers believed they held was far in excess of the level shown by market statistics.
To further reinforce value, there are a lot of positive messages we could include in regular communications with clients. For example, real-life claim case studies could be included along with transparent information on the amount of claims the provider has paid. But the emphasis here should be to reassure the policyholder that valuable cover is in place, not to scaremonger.
We could also be more creative about the way we communicate, taking a more personalised approach. For example, why not send a birthday card each year - it is life insurance, after all.
Communication alone may not offer consumers the reward they expect for their loyalty. The Syndicate research shows that 65% of policyholders and potential policyholders alike would be less likely to cancel a policy if their loyalty were rewarded.
When thinking about engagement models, perhaps the best place to start is the retail sector and its use of loyalty cards. Retailers have used these cards to engage with customers in a new way; allowing customers to earn points they can spend in store, creating discounts on repeat purchases, or giving product recommendations based on what similar consumers have bought. Done well, loyalty schemes have significantly improved retailers' understanding of their customers, improved loyalty and increased sales. Some may argue that this only works where repeat purchases are commonplace and that a long-term insurance policy is fundamentally different. But protection policies allow consumers to lapse at any point, so loyalty and understanding the value of the policy remains crucial.
As loyalty models have become more widespread, consumers have developed an expectation that loyal custom should be rewarded. Assuring an existing policyholder that their loyalty has already been allowed for in the calculation of their premium probably won't meet this expectation!
Examples of rewards from other industries include cashback, premium discounts and premium holidays that start after a certain period of time or level of spend. Including rewards like these within protection policies will naturally have costs that would need to be factored into the premium calculation. In a competitive market where price is still a key factor, even a small increase in premium can significantly affect competitiveness.
Change in the expected behaviour of policyholders will also need to be allowed for; and increasing persistency assumptions to reflect the effect of rewards can lead to increases or decreases in levelised premiums. Perhaps discounts could also be provided on other financial products, presented as part of a VIP club, or as gifts to friends and family. A recommendation from family or a friend may provide reassurance that is equally as valuable as the financial discount.
A significant source of frustration across multiple industries is when deals are reserved solely for new customers. It is common for protection products to be enhanced over time - the development of critical illness cover is a prime example - and, in most cases, only new policyholders benefit from this. We may consider a new product launch as a different generation that has its own pricing assumptions and underwriting processes, but this won't always be appreciated by existing customers. Where possible, it is a strong positive message to tell customers that their cover is being enhanced at no extra cost.
A more mutually beneficial solution is to design features that influence behaviour to benefit both consumer and provider. An example is the use of telematics to reward careful driving. By tracking policyholders' cars, insurers have been able to assess individual risk of claim and reflect this in the premiums they charge. We can do something similar in protection insurance, by rewarding people who reduce their risk of claim - for instance, by exercising regularly and eating more healthily. These rewards could be reduced premiums or discounts on other products and services that consumers value or that also encourage healthy lifestyles.
In this digital age, there are more and more opportunities to communicate with policyholders after the initial sale. The use of apps on mobile devices is just one example that allows two-way communication between provider and policyholder. One option could be to develop an app that is made available to the policyholder once the policy is bought. This could first act as an additional communication channel, providing policyholders with crucial policy information and allowing them to send queries or requests directly to customer services. But, more than this, it could also contain lifestyle information and education such as healthy eating tips, first-aid basics or gym plans.
The real value to providers, in addition to increased engagement and brand awareness, is the level of data that could be captured to refine our understanding of how lifestyle affects policyholder behaviour. By offering the functionality to track calories, diet plans and exercise routines, granular data would potentially be available for providers to better understand individual risks. Incentives could also be offered to encourage policyholders to use such tools. Indeed, just offering such an app or scheme could attract consumers who believe they could use the healthy living tools or benefit from the rewards on the product.
Creating more engaging protection products, rewarding loyalty, encouraging certain behaviour and improving the way we communicate can help unlock more value for today's consumer. This could help us better serve existing customers or attract brand-new ones that have never considered buying protection. Either way, more engaging products could be pivotal in helping to close the UK's growing protection gap.
Richard Purcell is head of technical marketing at PruProtect. Blair Sievering is manager, actuarial pricing, at Hannover Re UK Life Branch