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The Actuary The magazine of the Institute & Faculty of Actuaries

Health: consumer confusion

Ronnie Bowes reviews the findings of a report into consumer understanding of protection insurance. It seems that product knowledge is in short supply


Consumer confusion
Photo: shutterstock

When it comes to insurance, we need to be much better at supporting the customer journey. This is the stark message from a report produced by The Syndicate, a research initiative for the UK life and health industry.

It is entitled Where Are We On The Consumer’s Radar? Navigating A Route For Protection Insurance and it focuses on four themes: the consumer psyche, education and engagement, the role of the employer, and technology.

To support the report, a survey was commissioned of 3,000 adults in the UK. The findings show that consumers are confused and lack clear guidance when it comes to their financial planning, particularly when it comes to insurance. When asked what type of insurance was the biggest priority for them, half said it was life insurance. However, 80% of respondents could not accurately identify the correct description of how a basic life insurance policy works. On the positive side, critical illness (CI) and income protection (IP) were considered more important than mobile phone and pet insurance.

Consumer Confusion

Lack of understanding

When consumers fail to understand or interpret our products it can result in purchasing decisions that don’t meet their needs, a lack of trust and a reduced value in the products we offer. This is exacerbated by too much choice, similarity of products and

a lack – or overload – of information. Consumers doubt whether they have chosen the right product. A complex and time-consuming purchasing process also adds to their insecurity. Nearly a third of respondents were stressed by the choices available when researching protection policies.

Having shed some light on where people’s priorities lay in terms of insurance, the research then explored how much consumers really understood about the products that they were considering. Respondents were given a number of definitions for the same product and asked to choose the correct one. First, they were asked to consider a 25-year term-assurance policy (see right).

This is often perceived as the simplest of personal insurance products, with the highest penetration figures and a high level of importance, but the results were surprising. Overall, more people selected the wrong answer (confusing the product with an over-50s whole-of-life product) or didn’t know. Only 20% picked the correct definition. The issue here may be that we need to make product titles much more self-explanatory.

To gain further insight, the responses of those who held insurance products were compared with the responses of those who did not. Logic would suggest that somebody who has bought a product would know what they have purchased. However, only 29% of those who held life insurance selected the right definition. A further 25% said that they didn’t know what it was and 35% selected the definition that suggested that they would receive some sort of payment regardless of whether they died.

Cause for concern

For people who don’t hold a product, it is understandable that their product knowledge is lacking, but, with only 11% identifying the correct definition, it is cause for concern. Effectively, nine out of 10 non-holders have no idea about the product or its benefits and therefore every reason not to make a purchase.

Results for critical illness were fairly evenly split, which suggests consumers did not know the correct answer. By age, 35- to 44-year-olds had the highest understanding. Yet the challenge remains; if people don’t understand what a product offers; would they be inclined to buy it, particularly given other financial commitments? Once again, the results showed that even those holding a critical illness plan did not necessarily understand the product, or the likely benefits at the point of claim. Only 32% of holders understood this product, a figure that dropped to 16% for non-holders.

Income protection, often regarded as the product least understood by consumers, fared better. Some 45% of respondents identified the correct definition – higher than all other products. This was the most consistently recognised product, regardless of age, sex and socioeconomic factor.  This suggests that its more self-explanatory name may be the reason – 54% of holders and a third of non-holders identified the correct definition. The lengthy and protracted sales process may also have a positive effect on the long-term understanding of the product.

What the findings highlight is that a product’s simplicity is no guarantee that a consumer will necessarily understand it, or recall the benefits offered. Engagement and involvement at the point of purchase, as well as post-purchase, are vital to raise consumer awareness, reinforcing the value of the products. We may also need to think about the way benefits are explained, reviewing the use of jargon and, in particular, the names of products. ‘Term assurance’ is clearly not a name the public identify with.

The research also found that consumers want informal information from family, friends and even independent consumer bodies, such as Which? (62%). This is particularly so for the younger generation.

Surprisingly, given this knowledge gap, there appears to be no lack of confidence among consumers to make purchases. Almost three quarters (73%) agreed that they had ‘a sound knowledge and confidence to make a decision when taking out a protection product like CI or IP cover’.

In the driving seat

Consumers are happy to research products (dominantly online) along with discussing with trusted friends and family. They also want to feel in control of their purchasing decision. However, only 31% said they were comfortable buying life, critical illness and income protection online, which reflects a need for industry support. The younger generation, although lacking experience of insurance, expect to be in the driving seat; demand a good deal; and want the options of face-to-face and remote channels to support their purchases. Overall, what consumers want from the industry is ‘easy-to-understand product information’ and ‘ability to view policy benefits and exclusions online’ (50%) to support them in their decision process.

A third of consumers believe that our products are a luxury they cannot afford. Looking for effective engagement will increase the level of trust and value consumers have for protection products.

Some people will always be willing to take a risk – almost half believe that state benefits will provide a safety net in times of long-term sickness, unemployment or disability and it’s a truism that people tend to be more optimistic than realistic. As a 2012 study by Dr Tali Sharot on ‘optimism bias’ reveals: “People hugely underestimate their chances of getting divorced, losing their job or being diagnosed with cancer and overestimate their likely life span – sometimes by 20 years or more.”

Here and now

Also, when consumers are confused by a choice of products, they look for other features, such as brand. Finding ways to relate products to people’s day-to-day concerns would help them to evaluate the need for protection. Consumers live in the here and now and discount things that are in the future, preferring to worry about them later. Communicating ways to project the benefits for the long term, adding certainty and removing doubt will help improve the customer journey. a

Further info

The Syndicate is a research partnership between Hannover Re UK Life Branch and the Protection Review. Established in 2011, its aim is to monitor consumer trends and to share observations and ideas among a membership drawn from across the industry. Key members include PruProtect, Zurich and Ageas

Ronnie Bowes is head of marketing at Hannover Re UK Life Branch