Richard Purcell considers the role that value-added services are playing in changing customers’ perceptions of protection, and how such services could develop in future
The idea of protection as a service, rather than just a product that provides a payout in the event of illness or death, has been around for a while – and this approach could help to engage more customers with the concept of protecting themselves and their families against financial hardship. With more and more value-added services (VAS) being added to or extended on protection policies, protection as a service is gaining impetus in the UK.
A few years ago, UK protection insurers started adding additional services onto policies that could assist customers at the point of claim. At first, these focused on providing holistic support via services such as access to second medical opinions and advice or treatment from the country’s top doctors. However, since the COVID-19 pandemic broke out we have seen significant growth in the availability and breadth of VAS, with all major individual protection insurers in the UK now offering them.
These services can take many forms, from reactive support – such as 24/7 virtual GP consultations, mental health support and health checks – to lifestyle-related benefits that aim to keep people in good health. Most service providers reported an increase in VAS use, especially remote GP services, during the COVID-19 pandemic. This highlights the importance of offering easy access to convenient medical support.
To better understand customer perceptions of VAS, and the opportunities that VAS present for engaging holistically with end consumers’ needs, Pacific Life Re conducted customer research as part of its Beneath the Surface report. More than 1,000 people in the UK and Ireland took part in this research, with 69% considering VAS to be an appealing addition to their protection policy.
What do customers think of VAS?
When considering a protection product, customers are, of course, looking at the whole package. Price is the key factor: of the surveyed existing protection holders, 41% said it was their priority, closely followed by comprehensiveness of cover and brand. However, 17% of existing protection customers said VAS were also an important factor in the overall proposition.
Those in the 18–30 age group, or who had chosen critical illness or income protection as well as life cover, or who had children, were more likely to say that VAS were important when choosing a policy. Is the protection industry doing enough to educate all customers on what VAS are and what they include, so that more customers can make an informed decision when choosing a policy?
The research also revealed that those who received professional financial advice were much more likely to prioritise VAS when selecting a policy. The role of intermediaries is crucial because they can provide more clarity on the long-term benefits of VAS, and on the ease of access to medical support that can offer customers peace of mind.
More than 50% of protection customers were either unaware or unsure of whether VAS were included in their policy. Again, this suggests that insurers have more work to do, working alongside advisers, to promote the availability and eligibility of VAS and ensure customers are maximising their benefits.
The research also shows the role that protection insurers can play in helping customers to manage and improve their health. It’s clear that people are interested in understanding their health, with more than two-thirds saying they would value a health check as part of their insurance cover, as well as wider preventative support. Guiding customers through their health journey and encouraging them to maintain a balanced and active lifestyle is where VAS can have a particular impact.
In terms of existing service use we see good levels overall, but there is a mixed picture in terms of experience (see Figure 1). Proactive or preventative services tend to have the best experience among customers. Comments from respondents included:
“I think that insurers should provide a wide range of options for help and options to encourage healthy living, and that customers should be able to tailor their policy as they feel appropriate without undue pressure from the company.”
“I think they should add meaningful things rather than just tokenistic gestures.”
“I think offers should be tailor-made to the customer for the personal touch, to make the customer feel valued.”
“Add services that are useful to people, not ones that sound good but wouldn’t actually be used.”
The future of VAS
It’s clear from the research that VAS have high customer appeal and provide an opportunity to deliver more value to protection customers. However, there is work to do in terms of raising awareness of existing services, and both insurers and advisers will play a role in achieving this.
Another important consideration for insurers, and therefore for actuaries working on the development of protection products, is how these services are funded. Most are currently factored into the protection policy premiums and appear ‘free’ to the end customer. This means actuaries have to make assumptions about the usage of such services, and if usage increases because of, for example, pandemics or increased marketing, actuaries will need to reassess these assumptions.
Insurers may also want to consider other models in which they create an explicit additional premium for these services and therefore manage any cross-subsidy better. This could reduce usage and introduce a selection risk of those customers who add VAS onto their policy – but these customers may also see more value in those services if there is an obvious price.
An alternative model would be to design VAS to be self-funding over the long-term; the savings they could deliver through reduced claims could help to fund them.
The key here is to ensure there is sufficient data to evidence the effect of preventative services on customer health, and therefore the long-term claims risk.
The future of VAS looks bright, and while research points to a few ways in which they could develop, including through greater use of preventative services, we expect these services to become an increasingly vital part of protection propositions in the future. This will create more questions for the actuaries who price and develop these products. Ultimately, VAS could help to transform protection from a product into a service, engaging more customers in the process and ensuring a greater proportion of the population has the appropriate level of financial protection in place.
Richard Purcell is director, business development at Pacific Life Re