My Clients are stressed!
Last month I posted on Linkedin about a common theme that I have noticed when on-boarding new clients. They need help and urgently.
Thinking particularly in terms of a subsidence insurance claim, the pressures of the claim can put clients and their families under huge strain, affecting daily life and relationships. Perhaps the family member who reaches out and gets in touch is the one who is going to find a solution and help bring the whole scenario to a conclusion, but let’s not forget they are still feeling the strain too.
This has got me to thinking about whether this sort of pressure is something unique to property subsidence claims or whether it is more widespread and, more importantly, how can things change.
Thinking particularly in terms of a subsidence insurance claim, the pressures of the claim can put clients and their families under huge strain, affecting daily life and relationships. Perhaps the family member who reaches out and gets in touch is the one who is going to find a solution and help bring the whole scenario to a conclusion, but let’s not forget they are still feeling the strain too.
This has got me to thinking about whether this sort of pressure is something unique to property subsidence claims or whether it is more widespread and, more importantly, how can things change.
Contract Law
Going back to the law here, the basics of insurance is contract law. As the policyholder, you have taken out a contract with the insurance company for them to take certain action when certain things set out in the policy occur. It sounds simple but attempts to set out an easy-to-understand definition in law is difficult. There are a few elements to insurance as set out in MacGillivray on Insurance Law:
“the premium” – the purpose of a contract of insurance is to share among a large number of people the cost of losses which are likely to only happen to some of them. The premium is calculated in relation to the likelihood that performance will be required
“the promise to pay” – the insurer enters into a binding obligation to pay the customer under the happening of a relevant event
“sum of money or corresponding benefit” – A contract of insurance must be a contract for the payment of a sum of money, or for some corresponding benefit such as the rebuilding of a house ….to become due on the happening of an event.
“upon a special event” – the event must be one involving uncertainty in whether the event will happen or not.
So if the law finds it difficult to succinctly define insurance cover then it’s no surprise that the policyholder customer can find it impossible.
Conversations with clients and complaints data published by the Financial Ombudsman Service, show that very often the policyholder does not truly understand what the terms and conditions of the contract are meaning that, when a claim is made, they can feel aggrieved and let down.
This can lead to what is called the ‘expectation gap’ – which is the difference between what the policyholder thinks is covered by their insurance policy, versus what is actually contractually covered by that same policy.
Closing the expectation gap is not easy and insurance companies are obligated to put steps in place by their regulator (the Financial Conduct Authority) to avoid problems coming down the tracks.
There has been a lot of regulatory change in 2022 in order to address, amongst other things, this expectation gap. The changes from the Financial Conduct Authority in 2022 include:
Conversations with clients and complaints data published by the Financial Ombudsman Service, show that very often the policyholder does not truly understand what the terms and conditions of the contract are meaning that, when a claim is made, they can feel aggrieved and let down.
This can lead to what is called the ‘expectation gap’ – which is the difference between what the policyholder thinks is covered by their insurance policy, versus what is actually contractually covered by that same policy.
Closing the expectation gap is not easy and insurance companies are obligated to put steps in place by their regulator (the Financial Conduct Authority) to avoid problems coming down the tracks.
There has been a lot of regulatory change in 2022 in order to address, amongst other things, this expectation gap. The changes from the Financial Conduct Authority in 2022 include:
1. General Insurance Pricing Practices (GIPP) – this landed in January 2022 and meant that, from that point, insurers could no longer charge new and existing customers a different price for the same policy. That saw a big reduction in policy shopping prior to renewal to get an attractive rate from a new insurer. Policy premiums have increased but shopping around has decreased with customers looking set to stay with their current insurers for a longer period due to this change. Due to the increased period of time that a customer may spend in a contractual relationship with their insurer, the likelihood of them making a claim to that insurer increases. However, whilst this has had an immediate effect in reducing shopping around, it still remains important to compare deals with other insurers to ensure that you are getting a good price for your insurance.
2. Fair Value – fair value is the test that insurers (and the wider financial services market) are having to assess themselves against, with this assessment being carried out at least once a year. So what questions does an insurer have to ask themselves to make this annual assessment?
a. Has the insurance company done everything possible to help the customer make an informed decision?
b. Did enough questions get asked prior to entering into the contract, to ensure that the customer’s needs were truly understood?
c. Did you discuss with the customer things that the customer may not have understood that they needed to ensure that the customer understood areas that they had not previously considered?
d. Did you flag-up and help them understand not only what the terms and conditions of the policy covered but also what the policy does not cover?
e. Did you assess the capability and understanding of the customer to ensure that the documentation was accessible and understandable to that customer
f. What about the claims process, is that an easy process to understand and to follow?
g. Do your systems allow for the customer to be given the benefit of the doubt?
h. Do you embed a culture of continuous professional development within the organisation
As you can see these questions are far wider than value being based on price.
b. Did enough questions get asked prior to entering into the contract, to ensure that the customer’s needs were truly understood?
c. Did you discuss with the customer things that the customer may not have understood that they needed to ensure that the customer understood areas that they had not previously considered?
d. Did you flag-up and help them understand not only what the terms and conditions of the policy covered but also what the policy does not cover?
e. Did you assess the capability and understanding of the customer to ensure that the documentation was accessible and understandable to that customer
f. What about the claims process, is that an easy process to understand and to follow?
g. Do your systems allow for the customer to be given the benefit of the doubt?
h. Do you embed a culture of continuous professional development within the organisation
As you can see these questions are far wider than value being based on price.
3. Consumer Duty – The FCA consumer duty rules landed in July 2022 and set out both higher and clearer standards of consumer protection across the insurance industry to ensure that customers’ needs come first.
Guidance provided by the FCA sets out that the rules on consumer duty. Focusing on outcomes which relate to:
– Products and services
– Price and value
– Consumer understanding
– Consumer support
The FCA sets out that these rules require insurers to consider the needs, characteristics and objectives of their customers and how they behave at every stage of the customer journey. The insurer will need to act to deliver good customer outcomes and understand and evidence whether those outcomes are being met.
As part of consumer duty guidance, the FCA have tasked insurers with looking at their complaints handling as part of their consumer duty obligations. Insurers being encouraged to make changes to ensure greater understanding of their products to ensure that the expectation gap is as narrow as possible and therefore complaints are reduced.
As the majority of complaints to the Financial Ombudsman around property insurance is related to the claims process, this is where insurers need to focus to ensure that their customers understand and can access the process with ease and clarity. At the moment the industry average across insurers for the outcome of FOS complaints in property claims is that around 30% of those complaints are found in the customers’ favour – this shines a light on the fact that work still need to be done to ensure that insurers reduce complaints but deal effectively with those complaints that are made in order to reach a fair conclusion.
So thinking back to my clients and the conversations we have with them when taking on new claims. We commonly see individuals at the end of their tether in the claims process. Unable to understand what is covered/not covered, finding it difficult to understand a technically complex insurance claim, what the process is and how quickly a conclusion will be reached.
I can’t help but think that some particular work on subsidence as a peril needs to be carried out to ensure that expectations align with the service which will be received by the customer when a claim is made.
Perhaps this is where innovation from Isuretech industry might start to bring about some quick and much needed change to help and inform increasingly tech savvy customers,
– Products and services
– Price and value
– Consumer understanding
– Consumer support
The FCA sets out that these rules require insurers to consider the needs, characteristics and objectives of their customers and how they behave at every stage of the customer journey. The insurer will need to act to deliver good customer outcomes and understand and evidence whether those outcomes are being met.
As part of consumer duty guidance, the FCA have tasked insurers with looking at their complaints handling as part of their consumer duty obligations. Insurers being encouraged to make changes to ensure greater understanding of their products to ensure that the expectation gap is as narrow as possible and therefore complaints are reduced.
As the majority of complaints to the Financial Ombudsman around property insurance is related to the claims process, this is where insurers need to focus to ensure that their customers understand and can access the process with ease and clarity. At the moment the industry average across insurers for the outcome of FOS complaints in property claims is that around 30% of those complaints are found in the customers’ favour – this shines a light on the fact that work still need to be done to ensure that insurers reduce complaints but deal effectively with those complaints that are made in order to reach a fair conclusion.
So thinking back to my clients and the conversations we have with them when taking on new claims. We commonly see individuals at the end of their tether in the claims process. Unable to understand what is covered/not covered, finding it difficult to understand a technically complex insurance claim, what the process is and how quickly a conclusion will be reached.
I can’t help but think that some particular work on subsidence as a peril needs to be carried out to ensure that expectations align with the service which will be received by the customer when a claim is made.
Perhaps this is where innovation from Isuretech industry might start to bring about some quick and much needed change to help and inform increasingly tech savvy customers,
