Is financial well-being insurers biggest opportunity?

By

Isabelle Santenac

EY EMEIA Financial Services Assurance Managing Partner, EY Global Client Service Partner

Passionate leader. Maintaining high quality in Assurance services. Inspiring the next generation of female leaders. Proud mother of three. Trail runner. Golfer. Skier. Loves travelling and cooking.

6 minute read 13 Sep 2019

Insurance is based around trust. Building on this to become a long-term partner to customers could open up whole new avenues of business.

Financial well-being is the ability to make well-informed money-related decisions that result in greater financial security and confidence for both the short and long term. At the heart of the concept is a trusted relationship between customer and financial service provider – but also a sense of long-term financial security.

At a basic level, insurance is a promise to put things right when the worst happens, whether that be something as small as cracking the screen on your new phone, or as serious as being involved in a life-changing accident. It offers financial support when problems hit, increasing financial resilience and security. In other words, insurance helps towards its customers’ financial well-being.

Yet research from Consumer Intelligence found that trust in UK insurers has fallen by 3.75% over the last 12 months, while the global Edelman Trust Barometer found that US consumer trust in financial services fell by 20 percentage points in 2018 alone.

The insurance industry has an opportunity to reduce such falling levels of trust by informing customers of their options in a clear and simple way – because a lot of the issues that arise in insurance stem from the customer first and foremost not understanding what it is they are buying. Lengthy policy documents littered with industry jargon, exclusions and limitations mean that many customers are either buying policies for risks that they already have cover for or are leaving themselves dangerously underinsured.

This means that when they come to activate a policy and make a claim, the cover they expect to support them in their time of need sometimes simply isn’t available. This naturally erodes trust even further.

This is precisely what insurance was originally invented to provide centuries ago – and could be the route to fresh relevance for the industry in the uncertain future facing both insurers and their customers.

Building regular, real-time customer touchpoints

One of the main issues facing the insurers of today is that they do not have enough contact with their customers, usually only interacting with them once a year when the policy comes up for renewal, or if the policyholder is unfortunate enough to need to make a claim.

This means that insurance companies become the forgotten partners of the financial services world, usually only becoming involved in a customer’s life to facilitate a grudge purchase that the individual or business hopes they will never have to use.

Traditional insurers are simply unable to embed themselves in the lives of their customers.

But just as internet banking opened up the banking world to the day-to-day lives of their customers, the Internet of Things (IoT) can lead a similar revolution for the insurance industry, with real-time data analytics helping customers make better choices to improve their risk profiles and enhance their financial well-being.

Today’s insurance customers are constantly connected to the internet via a multitude of different devices. From watches to smart electricity meters and home assistants, everything is becoming increasingly ‘smart’, creating ever more sources of information about the day-to-day lives of consumers and the ongoing business dealings of companies, no matter what their size.

Most importantly, this connected technology creates new exciting avenues for communication that simply did not exist before. This means that insurers can better understand their customers’ needs and so inform their policyholders about how they can help them in ways these customers can truly appreciate.

Creating a life-long relationship

The biggest opportunity among all of this is to become a trusted partner in improving the financial well-being of customers – and create relationships that can last a lifetime.

One easy way to achieve this is by fixing the little things.

Making mid-term adjustments available online and on-the-go without the need for costly call centers and expensive admin charges for policyholders would make a huge difference to customer service experience and remove the worry and stress associated with changing an insurance policy.

Likewise, many insurers that are setting themselves up for success in the future are already looking at ways to move from the annual premium model that has been the bedrock of the industry for so long, to new, data-driven business models. For instance, subscription services that adjust themselves automatically depending on the changing risk profiles of the insured can offer a far more personalized service for customers while running continuously without the need for renewal.

And the best thing is, all of this can be facilitated through the smart devices that customers are already using day-in, day out.

Not only does this reduce the stress and burden being placed on policyholders, it also makes perfect business sense. By integrating themselves into their customers’ lives via the technologies they are already using, insurers can gain greater insight, offer better services and build brand loyalty in a way that until now they just haven’t been able to do.

Ultimately, this gives insurers a real opportunity to offer better services and build brand loyalty in a new way compared to what they have been doing so far.

The dangers of being overly familiar

However, insurers must be wary of becoming too integrated into the day-to-day lives of their policyholders.

If, for example, a health insurer has access to ongoing health data through the sensors in a smartwatch and identifies that a customer is going through a period of intense stress, could it charge more for its monthly premium to offset the increase in the customer’s risk profile? Of course, any insurer that did this, while making perfect business sense, would be acting extremely unethically and could do untold reputational damage to their brand.

Instead, a responsible insurer could use this information to provide their policyholders with advice for managing their stress and help them to improve their health and, as a result, reduce the risk faced by the insurer. This could even be delivered automatically on that same smart device via an app.

Countering the rise of the uninsurable

Another emerging challenge for the insurance industry is the rise of uninsurable sections of society as individual pricing and more tailored underwriting practices become the norm, and new challenges such as climate change dramatically increase the potential impact of certain types of risk. Recently I heard a story on the radio about a French farmer who had his entire crop destroyed following an unexpected ice storm. The man lost absolutely everything, but he was not insured – he had canceled his insurance as it had become too expensive.

He was almost in tears, and I remember thinking to myself that – if insurers are not careful – the increasing granularity of data and better understanding of risks could lead to vast swathes of customers being side-lined by the insurance industry as they become unable to afford basic cover.

This would greatly damage those individuals’ financial well-being – but it would also cause irreparable reputational damage to the industry. Trust in the ability of insurance to provide the kind of last-resort support the industry was set up to deliver would be lost, perhaps permanently.

We are already talking to clients about what we are calling responsible insurance, and how insurers can develop simpler and more affordable policies as part of a more inclusive suite of products. This could do wonders for the industry’s reputation, but it could also help individuals – and even society and the wider economy – to become more financially resilient. This would be beneficial for everyone.

Technology and data analytics will again certainly play a part here as providers seek new ways to make insurance work, even for riskier customers. Risk mitigation and incident management should also be key areas of investigation for insurers keen to lower their own exposure while still helping provide higher risk customers with a greater sense of financial security.

A new way of doing business

In August 2019, the Business Roundtable, a leading American association of CEOs from a wide spectrum of businesses, voted to redefine the purpose of companies as being about looking out for the interests of customers, workers, suppliers, and communities, not just shareholders.

That is a big change in the mindset of business leaders, and something we have been championing at EY for some time, including via the Embankment Project for Inclusive Capitalism, which seeks to refocus business minds on long-term value.

But insurers really need to embrace that change if they want to be successful – not just in addressing the challenges they face now, but those that are coming next and beyond.

If they do, they can look forward to a bright future as a partner and adviser to their customers, trusted not just to offer financial resilience, but long-term financial well-being. Rather than focusing on the short-term value of annual premiums, this new focus on the long term will see insurers become truly valuable to customers, society, and shareholders alike.

Summary

Building long-standing relationships with clients is essential for the insurance industry. By concentrating on maintaining and improving the financial well-being of their customers, insurers can build lasting relationships and deliver long-term value.

About this article

By

Isabelle Santenac

EY EMEIA Financial Services Assurance Managing Partner, EY Global Client Service Partner

Passionate leader. Maintaining high quality in Assurance services. Inspiring the next generation of female leaders. Proud mother of three. Trail runner. Golfer. Skier. Loves travelling and cooking.