How can the insurance sector improve its faltering reputation?

Insurance is used to controversy, but the last few years have proved particularly torrid for its reputation.

After two years of relentless headlines over failures to pay on business interruption claims during the Covid pandemic, the latest hammer blow for the industry was last month’s crackdown on the sky high commissions brokers have received for arranging insurance for apartment blocks by levelling up secretary of state Michael Gove.

After getting on for 40 years working in the insurance industry, compliance consultant Branko Bjelobaba said that these latest revelations have left its reputation at rock bottom.

“I don’t think it could be any lower,” he said.

“Not all, but some insurers and brokers have cooked this up to the detriment [of customers].

“Insurance does work incredibly well. There are millions and millions of pounds of claims paid out every day. Nothing would move or happen without insurance. It is a really important industry, but the behaviour of a few individuals makes it bad for others.”

Ian Hughes, chief executive of Consumer Intelligence, however, said he believes that the reputation of the industry is “no better or worse than ever”, but is under a greater “spotlight” thanks to the internet-fuelled 24-hour news cycle.

“The industry is being caught short by the fact that practices, which have been the norm since the start of insurance, are suddenly being called out as questionable,” he said, adding that the industry has often lacked a strategy to defend itself against things it was not expecting.

“It feels like the insurance industry has lost control of the narrative and it’s just on the receiving end all the time,” said David Williams, chair of the Fire Protection Association’s RISCAuthority.

Steve White, chief executive of Biba, added: “For a lot of people insurance is a distress purchase – and they never use it because they never have a claim. If they do make a claim and if a policy pays out in full on day one, for a lot of people that’s what [a policy is] supposed to do anyway so we’re in a bit of a no-win scenario.”

Williams, who was formerly board director at Axa UK, agreed: “The insurance industry is always going to be judged by lowest common denominator. Even if the bulk of the market is doing the right thing or trying to do the right thing, that doesn’t make news because it’s dull and boring. At the current time, we’re in a really poor situation, and we need to find a way to recover from that.”

From the ashes

So how does the industry restore its battered reputation?

White argued that one of the keys to turning round the current low point was to make it clear to customers what insurance will and won’t do.

He explained that this would involve “more accurate labelling of the product”.

“Using the old Ronseal analogy – [insurance should] do what it says on the tin,” he added.

“In terms of really rebuilding reputation in places where it needs to be rebuilt – because it doesn’t need to be rebuilt everywhere – we need to get better at describing what we are.

“We probably need to be better at having a complete understanding of the customer’s risk and for the customer to have a fuller and better understanding of the risks they are is exposed to.

White added: “The use of plain language – both in policy terms and the language we use when talking to customers – will help in any reputation rebuild.” 

Bjelobaba took a more punitive view. The Chartered Insurance Institute (CII) should kick out firms that have acted unethically to improve standing with the public, he said.

“If chartered firms have been behind some of these scandals,” he said, “then the CII should seriously look at their chartered designation because it is not appropriate for firms to have the highest professional level designation if they’re indulging in dodgy or corrupt practices to increase the bottom line and sod the customer.

“Chartered status is the is the highest professional standard a firm can have and it should only be held by those firms that operate professionally and ethically all the time.”

Consumer Duty opportunity

However, taking this step would have a limited impact, argued Williams: “As long as chartered status is optional, brokers will find something else to put on their letterheads if they were to lose that.”

The focus on customer outcomes in the FCA’s new Consumer Duty regulation, due to be implemented on 31 July 2023, will help the industry’s reputation though, he added.

Hughes agrees: “None of [the Consumer Duty] should be seen as a threat. This should only be seen as a threat if you’re trying to game customers in the short term to make a profit in the hope that you’re gone by the time they work out that you’ve done something wrong.

“If that’s your intention, you deserve to be called out. I’ve met hundreds of insurers and that’s not their intention.

”The Consumer Duty comes at a great point in time. The desire and need for insurance to comply with that should not be just for regulatory reasons, but also good for customers and good for shareholders.”

The wide-ranging new regulation should also mean that some of the industry’s more opaque practices no longer pass muster, said Hughes: “Your ability to hide stuff has gone, so it’s better to build a business model that doesn’t involve hiding.”

Despite the opportunity of new regulation, major challenges on the horizon for the insurance sector mean that it must get its reputational act in order, said Williams. “We will see more storm and flood claims because of climate change, we need to be making sure that we go above and beyond in terms of delivery.”

This will need to involve the industry getting on the front foot in telling its story, he said: “We’ve got to try and take control of the narrative, we need to be pushing the positive messages. We’ll struggle to get anybody to take that much interest sadly, but we’ve just got to keep pushing, that’s all we can do.

“There are some great things that go on – insurance enables people to get on with their lives and businesses to get back up and running [and] we’ve got find ways to talk about it.

“We need to get those messages out so that people are thinking of positive things, rather than that we’re just demanding money with menaces or relying on the small print.”