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Retaining insurance customers in a changing market – Source

by: Kevin Paterson
  • 21/07/2014
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With a number of changes to general insurance market on the horizon, Source Insurance managing director Kevin Paterson looks at the state of play for advisers.

There are two significant developments that will affect the sale and retention of household general insurance that are either implemented or under serious consideration by the regulator. They may not have been given much air time but are nonetheless important.

The Financial Conduct Authority (FCA) recently carried out a review into the sale of add-ons focussing initially on motor legal expenses insurance under the heading of ‘products of limited value’.

The view of the regulator was that these products demonstrated several characteristics which lead to poor value for money and while typically the monthly or annual cost of these products is relatively low, there is usually a significant profit margin in these products for the insurer.

It found the client was not aware that the cover was included nor what it covered thereby leading to low consumer awareness and subsequently very low levels of claims.

Interestingly the research findings analysed by the FCA did not wholly support the view of the regulator, with a large percentage of consumers surveyed stating that motor legal expenses insurance offered good value for money as a welcome add-on to their policy.

The FCA has therefore gone back to the drawing board to further analyse these findings with a view to drafting new rules for insurers and distributors relating the sale of these products, however, one thing we can all be assured of is that there will be changes.

From a broker perspective you have a particular and very important part to play in the sale of these add-ons by making it very clear to your client what cover is included and what it provides.

Legal expenses insurance is a particular case in point as there is an awful lot of misconception around this product.

I bet if you asked your client what they felt legal expenses insurance provided when added to their home insurance policy, most would say something along the lines of covering the homeowner’s liability should they be sued for damage, injury or loss sustained on their property.

Whilst this is also covered, the insurance provides a much broader base of cover including:
• Contract of employment disputes
• Defence against criminal prosecution
• Professional fees in relation to an in-depth HMRC investigation of your personal tax affairs
• Pursuit or defence of a consumer dispute about faulty goods or services
• Pursuit of an infringement of your legal rights arising from your ownership or occupation of your home.

Typically the annual cost of adding this type of cover to your household policy is less than £20 but as you can see the cover can be very valuable. Your job is to make sure your client is aware of the cover and the option to add this benefit.

In the same vein the FCA is implementing new rules that will force insurers to remind customers of their previous premium when their policy is invited for renewal. The idea being that it will encourage more competition because the client is more likely to compare prices at renewal if it is clear that their premium has increased with their existing insurer.

I’m not sure this is true, in our experience most clients expect their household and motor insurance to increase each year and assuming this increase is within a certain tolerance acceptable to the customer inertia will invariably rule.

Whatever the truth, there is even more reason for you to engage with your client on renewal now, instead of relying on inertia alone because with these new rules failure to act will almost certainly lead to a reduction in your policy retention rate.

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