How can the insurance industry rebuild consumer trust following the financial crisis? It’s a significant question, although the answer is really quite simple: the way in which the industry engages with the consumer must be more transparent. The industry must make propositions perfectly clear while the consumer must be able to fully understand the issues in which they’re trying to engage (for me, this is all about financial capability and education). By meeting these requirements, the industry stands a far greater chance of meeting the consumer’s expectations.
The challenge here is in overcoming the consumer’s reluctance to engage in a long-term commitment. Only by consistently meeting the consumer’s expectations over time can the insurance industry re-establish trust. Achieving this requires a lot in terms of designing products, building solvency rules and conducting regulation, even more so given the huge regulatory changes that are in the pipeline. But overall, consumer engagement is key.
What customers want
Determining exactly what customers expect of us becomes all the more pertinent given the government’s apparent desire to see the state withdraw and let the private sector step into the breach. This potentially presents the insurance industry with a wave of new opportunities. Take pensions, for example. In the UK, private pension provision is significantly ahead of most other developed markets and pension reform can develop that provision even further. The industry is regarded as a key component in the relationship between government and the private sector. Developing that relationship further will present a great opportunity for the insurance industry, particularly if we can address some of the issues that we know need improvement.
Working with the government
Another avenue in which the industry can rebuild consumer trust is the issue of flood risk insurance. This issue will take centre stage as the current Statement of Principles on the Provision of Flood Insurance, an agreement between government and the Association of British Insurers, expires on 30 June 2013. We’ve yet to see what will replace the Statement of Principles, but it’s certainly an opportunity for the industry to be seen as part of society’s future. Whatever the solution, it will need to be developed on a workable and sustainable basis that allows the industry to compete fairly.
There are aspects of the current Statement of Principles that can create distortion in the way the market operates and which are not sustainable in the long-term. The next six to 12 months will be a real test, as the insurance industry attempts to work with the government in a real and sustainable way in order to find a workable solution for both the industry and the consumer.
The way the insurance industry and the government work together in the coming months will be crucial in terms of the way the industry is seen by the consumer. Ultimately, if we don’t find ourselves in a position to meet the consumer’s needs, then we’ve got a real problem for society as a whole.
Facing a tide of reform
The next 18 months will see a tidal wave of industry reform, from the Retail Distribution Review (RDR) to major changes in regulation and pensions. It’s therefore important we keep an eye on the outcomes we want to achieve. Nor must we forget that the purpose of much of this reform is to encourage the consumer to better engage with their own financial affairs and to prepare for the future.
But if the rules of the Financial Conduct Authority (FCA) are poorly drawn, we risk reducing the consumer’s access to financial advice. This would make their decisions about long-term financial affairs far more difficult, so much so perhaps that they may retreat and not make those decisions at all. The RDR combined with the new remit for the FCA will be critical in allowing the agendas of both government and the pension reform some chance of success.