By Neer Rama, Force Solutions Product Manager at thryve
The insurance industry faces an important transformational challenge. I’ve touched on this in my previous article, where I explored some of the barriers that are keeping insurance incumbents from changing with the times. In that piece, I looked at how looming competition will exploit the shifting dynamics in the industry as we move towards more customer-centric cultures.
But insurers shouldn’t be motivated by only competition. The real reason to change is clearly to attract modern customers. This is something insurers are not geared for, and it’s not a matter of opinion. According to research commissioned by the European Union’s Financial Services User Group, a project that interviewed industry people from 10 countries, insurance is not a customer-centric industry.
The report found “some evidence indicating forms of mis-selling with detriment to consumers. These include churning, twisting, overcharging, inflated products, forced bundling, the sale of unsuitable products or the confusion with products, and a lack of transparency. About half of the respondents considered mis-selling practices a problem at national level.”
Other issues flagged were the conflict of interest among intermediaries who serve two masters and will often make choices at the expense of customers, and a lack of transparency around disclosure of status, role and dependencies of an intermediary. Yet these are not new problems and help motivate the rampant disintermediation happening in insurance.
But we can’t lay it all at the feet of intermediaries. The overall approach and culture of insurers towards customers needs to change, particularly in the expensive market of Ontario. The Canadian market is undergoing some significant regulatory change. In the interest of debate, I want to share some other regulatory choices that can help change the balance and bring customers and insurers closer together.
A cap on broker commission
Several markets have introduced regulatory caps on broker commissions. This is helpful since the ‘two masters’ problem relates directly to short-term commission – a common problem in the Canadian industry. German authorities are already mulling this idea.
Removal of all broker fees
Brokers can be incentivized by commissions which, if correctly regulated, will incentivize both transactions that favour customers and encourage long-term customer relationships.
Treating-customers-fairly regulatory approaches
Treating-customers-fairly (TCF) is an outcomes-based approach with clearly-defined fairness outcomes for customers. It’s an end-to-end path from product design and promotion, through advice and servicing, to complaints and claims handling.
A parent organization can’t own both broker and underwriter businesses
The lack of customer-centricity in insurance can partly be pinned on the close proximity, through mutual ownership, of different entities in the insurance value chain. This breeds unintentional self-interests that override customer needs.
Full disclosure of commission practices
Simply put, insurers should be upfront and transparent about commission practices to customers. This is already happening in the Canadian market as an industry initiative.
These could be regulations, but as the last point illustrates, they needn’t be. The insurance industry and even individual players can enact these values to make them more customer-centric and thus prepare for emerging competition. I also want to highlight the outsized role technology plays to make such changes possible.
We’re not just talking about rules. These are major cultural shifts, and both underwriters and brokers need to adopt tools that will empower their staff and modernize their processes towards customer-centricity. Usually, that would require significant technology investments that take a long time to deploy and often underdeliver. But modern platform services such as Salesforce’s Financial Services Cloud and Insurance CRM make the deployment, production readiness and scale of such systems much more effective and less demanding.
The time is right for the insurance industry to change how it does things. Customers demand change, market research has revealed the paths to that change, and modern digital platforms make the transition both affordable and achievable in the short term. But this is a fact: if you plan to continue insurance business-as-usual, you will soon not have a business at all.