Telematics and referral fees

Posted on 17 May 2012 by Duncan

Telematics is often talked about as the future of motor insurance, one that may perhaps arrive sooner rather than later. So it may at first appear rather odd to associate it with referral fees, a development that many in motor insurance would like to see consigned to history. Those getting to grips with telematics would do well to keep in touch with the Office of Fair Trading’s (OFT) soon to be published report on motor insurance, in which referral fees is expected to feature prominently.

The OFT report is expected to address the ‘fairness’ with which insurers and others in the ‘motor accident business’ used information provided by policyholders. It should shine some light on what policyholders should expect from their insurer when it comes to confidentiality and privacy.

  • confidentiality, in terms of whether the insurance contract allows insurers to sell on claimants’ private data in the way that they have been doing. Insurers would say that it does, as it’s all about services that could be of value to claimants. I’m not so sure.
  • privacy, in terms of whether the extent to which referral fees were pursued down the claims supply chain took the matter beyond contract law and into the more fundamental realm of the individual’s right to  determine how information about them is used and by whom.

Some say that issues like privacy have been left behind in the onward march of big data, with this titbit from 2001 by Larry Ellison, the CEO of Oracle, being oft quoted:

“The privacy you’re concerned about is largely an illusion. All you have to give up is your illusions, not any of your privacy.”

Clearly, there was more than a little self interest behind Ellison’s assertion, and I’m reluctant to apply his thinking to all business sectors and to simply accept it as some sort of de facto ‘new reality’. For some sectors, like the rapidly evolving ones that Ellison was busy with in 2001, the  ‘data privacy’ horse was already bolting from its stable, dazzled by the lush fields of data sown by the software engineers. At the moment however, I think that insurance’s ‘data horse’ is sniffing the fresh air of the fields, but has its feet still in its stable. I say this because it’s a mature sector with long established principles around how data is gathered. Old habits die hard.

Telematics has the potential to disrupt some of those old habits and, we hope, for the better. After all, one type of innovation can often spur on further new thinking. Innovation does however come with the risk of further ingraining bad habits, of which, for insurance, the abuse of claimant private data is now being cited as one.

If the sector wants to avoid finding itself classified by the public as a ‘repeat offender’ when it comes to privacy, then those involved with the introduction and scaling up of telematics need to pay attention to what the OFT has to say.

Posted in Overall Market, Underwriting | Tagged , , , , , , , | Leave a comment

Ethics and Fraud – pt2

Posted on 11 May 2012 by Duncan

Insurers will be launching an Insurance Fraud Register (IFR) later this year and I expect that over the next few years, several thousand policyholders will find themselves put on it. This is the second of two posts in which I look at the ethical dimension to how information on insurance fraud is acquired, sorted and analysed. The ethical dimension is important because it supports the fair treatment of policyholders who may come under the scrutiny of insurers’ fraud teams and, more broadly, the long term backing given to this initiative by the public and politicians.

I set out two of the six themes to that ethical dimension in yesterday’s post and I’ll cover the remaining four here, beginning with number three, about social norms.

Thirdly, keep to social norms when applying labels such as fraud and proven. Both are emotive terms that have to a large extent been normalised through legal process to arrive at definitions and usages acceptable to the public at large. If insurers view fraud, or proof thereof, in terms overly  accommodating to their own needs, they risk a significant public and political backlash. So the question “could I prove this in court” should always be front of mind, as should be “can my legal team show me a court ruling that mirrors this situation”. If the answer is either is no, then you should have serious doubts about applying a ‘fraudster’ label to a policyholder by putting them on the Insurance Fraud Register.

Fourthly, apply some critical thinking to the information upon which you’ll base a decision on underwriting fraud. By critical thinking, I mean looking in a systematic fashion at each of the steps taken to arrive at a decision. So, have you collected enough information upon which to base your decision, or are there some gaps in what you know? And might those gaps be material in some way to the decision being taken? If you’ve brought together information from different sources, is the nature and quality of all that information sufficient to arrive at a conclusive decision? Or does it look a bit like one plus one equals three? Is what I’m seeing really there, or do I want to see it there? If you’re using software to support decisions on insurance fraud, has it been scrutinised in a similar way? Think of critical thinking as a form of decision making quality control – to label someone as fraudulent, that quality level has to be high.

Fifthly, policyholders have a right to privacy even when under investigation for possible fraud. This means that if a policyholder has given information to one source for an agreed purpose, then it’s unlikely that you can then use that information for investigating an insurance claim without the policyholder having given their consent, under circumstances of free choice, for that information to be shared. Similar restictions apply to how information can be gathered on the ground by claims investigators.  It may seem galling to investigators to have certain lines of enquiry closed down because of privacy rights, but police and other enforcement agencies have been working with such rights for many years. Such rights need to be respected even when information lands on the insurers’ desk in a fortuitous manner – that’s a lesson learnt the hard way by three insurers in Ireland who received social welfare information on claimants that could only have been obtained illegally.

And finally, be careful how you organise the investigation of fraud, by both in-house people and external third parties, otherwise you’ll stray into a minefield of conflicting interests. People and processes should of course be aligned so as to uncover and tackle as much fraud as possible, but there also needs to be controls in place to disengage how such work is recognised and rewarded from performance measures relating to case or cost counts. Employees, investigators, software providers and the like should be paid for doing a good job, but should not be incentivised on the amount of fraud they uncover, otherwise the system will end up being played and ‘fraud’ found where it doesn’t actually exist. Insurance fraud is too important for it to risk being undermined by the cutting of legal corners.

Those behind the IFR have acknowledged the importance of securing the support of consumer groups, and the public at large, in the sector’s mission to tackle insurance fraud. That support will be short lived if insurers fail to uphold the standards of behaviour expected of them.

Posted in Broking, Claims, Insurance fraud, Loss Adjusting, Overall Market, Underwriting | Tagged , , , , , , , , , | Leave a comment

Ethics and Fraud – pt1

Posted on 10 May 2012 by Duncan

Tackling fraud is an ethical thing to do, as it penalises those who commit it, deters those who are tempted by it and benefits those who never would have thought of doing it in the first place. Everyone, other than the fraudsters, benefits from there being less fraud around.

The ethics associated with fraud don’t stop there however, for how you tackle fraud also has an ethical dimension. There’s no point teaching fraudsters a lesson by adopting tactics that are questionable, perhaps even illegal, themselves. However with insurance fraud reportedly costing UK insurance in the region of £2.1 billion a year, the pressure on fraud personnel to deliver results must be huge.

So while insurers are investing heavily in their own fraud prevention systems and supporting those of the Insurance Fraud Bureau as well, they also need to make sure that checks and balances are in place to avoid drifting into unethical practices. The recent experience of three well known insurers in the Irish courts highlights the dangers of leaving such activities to their own devices.

How insurance fraud is investigated may to date have been something of interest only to those in underwriting and claims, but it’s not going to stay that way for long. The launch of the Insurance Fraud Register (IFR) later this year will bring it very much into the public domain, as several thousand people end up being labelled as fraudsters by the insurance sector. I’ve written in the past about some of the challenges faced by the IFR, which, if not properly resolved, will undermine its credibility in the eyes of the public. What I want to do in this post however is concentrate on the many individual insurers who will be supplying the IFR with fraud data and in particular, the ethical dimension to how that fraud data is acquired, sorted and analysed.

Some in the insurance sector, perhaps those who have worked long and hard at improving insurers’ handling of fraud, may be tempted to think that the sheer size and complexity of insurance fraud overrides the detail of how it is addressed – in other words, don’t the benefits for everyone of really getting to grips with fraud outweight the occasional corner that may have to be cut in order to achieve results? That’s a question upon which the public can supply a clear pre-existing answer: one set of rules cannot be upheld by the breaking of another set of rules. The ends do not justify the means. The Leveson Inquiry illustrates just how slippery a slope such thinking can turn into.

In this and a subsequent post, I’ll set out what I think are the key themes around which a set of principles could be fashioned to embed some ethical thinking into how insurers tackle fraud. The overall watchword for these themes is fairness, for no other reason than the way in insurers tackle fraud is just as much part of ‘treating customers fairly’ as any other part of their operation.

Firstly, be clear about what you’re trying to achieve by tackling fraud and make sure your approach reflects that. A reduction in claims costs is an obvious target, although tackling fraud can often be expensive. In some circumstances, the cost of tackling fraud has been known to exceed the savings achieved, but the fraud initiative was kept up anyway, for the purpose was to achieve more than just cost savings. There’s a public interest argument for tackling fraud, in that the more fraud is addressed, the more confidence the public has in the overall fairness of the market, which in turn builds market confidence and makes it work more efficiently. On a more individual level, for underwriting and claims personnel to be considered professional, that public interest must be taken into account – it’s one of the core elements of professionalism. So how do you take that public interest into account? By embedding it in how you define fraud, how identify it, how you investigate it and how you deal with what you find.

Secondly, remember that you’re a professional and as a result, possess a vastly superior knowledge of how insurance works than the policyholder. How that information assymmetry has been handled is critical to judging insurance fraud. So before putting someone on the IFR, take a careful look at how well what you expected the policyholder to do, or not do, was explained to them. Were the assumptions behind the quote they accepted not only highlighted in your quote and that of the aggregator as well, but also prominently displayed in the policy’s documentation? Did you explaination use technical terms, or was it spelt out in plain English? It’s important, when asking such questions, to put yourself in the shoes of the policyholder (or for example, the Financial Ombudsman Bureau) so as to appraise the situation in a fully professional way. Of course the policyholder is obliged to become familiar with the terms and conditions of their cover, but at the same time, the insurer is obliged to present that information in ways that are both clear and unambiguous.

I’ll post about four further themes shortly.

Posted in Broking, Claims, Insurance fraud, Loss Adjusting, Overall Market, Underwriting | Tagged , , , , , , , , , | Leave a comment

More on Insurance Fraud

Posted on 27 April 2012 by Duncan

The launch of the Insurance Fraud Register (IFR) has been put back to the third quarter of 2012, according to a report in this week’s Post Magazine.  In the report, Richard Davies, the IFR project lead and AXA UK’s group fraud risk manager,  describes sector wide projects such as this as ‘like herding cats’. Davies went on to stress that the IFR had to be trustworthy and that customer acceptance was very important, with the Financial Ombudsman Service and the consumer association Which? listed as organisations the IFR want to have on-side for its launch.

While I’m sure that the FOS and Which? may be happy to make polite noises about an insurance fraud register in general being a good idea, I would be very surprised, given the mandate of each organisation, if either came out strongly in favour of the IFR per se. There are just too many unknowns at the moment; too much to be taken on trust.

Having a consumer organisation or two ‘on-side’ is a ‘nice to have’, but it is no substitute for consumer representation on the governing bodies of both the IFR and the Insurance Fraud Bureau. That is something that both the IFR and IFB can resolve in this second quarter if they put their minds to it.

Davies went on to voice this concern:

It is not my fear of being sued that keeps me up at night, but someone with a very active Twitter account trashing the IFR and the industry. So if someone thinks they are going to load Sir Alan Sugar on the IFR on day one, would they please be very, very careful.

Given an estimate early last year of there being 7 million active, unique users of Twitter in the UK, I suspect he won’t have long to wait before his worst fears come true. I’ve posted before about some of the basic steps that the IFR needs to complete before going live, such as agreeing on cross-sector definitions of fraud and proven, as well as audit procedures to ensure compliance with those definitions. That’s not being careful; it’s doing the basics.

It’s important when reading about the impact of the recent IFR pilot to differentiate between its impact on underwriting fraud and on claims fraud. Most of the sector’s efforts todate have been on claims fraud, although some insurers are now turning their attention to the underwriting fraud side as well. The IFR delivered this headline about the underwriting fraud identified by its pilot: that a “shocking” 92% of underwriting fraud matches discovered would have gone undetected by insurers. It is shocking in one sense, but other senses are questioning what the IFR is classifying as ‘underwriting fraud’. Given that the IFR went on to discuss each of those matches with the five pilot insurers, it also makes me wonder just how many cases these statistics have been based upon. Now I may be in danger of reading too much into one article: if so, then I hope the IFR opens up and publishes more about its progress. Greater transparency will earn it more trust.

While I have concerns about how the IFR is being implemented, I have absolutely no doubts about the value it represents, properly implemented, to the insurance buying public. Richard Davies has a huge task ahead of him and I wish him every success.

Posted in Claims, Insurance fraud, Overall Market, Uncategorized, Underwriting | Tagged , , , , , , , | Leave a comment

Revolutionary Insurance

Posted on 26 April 2012 by Duncan

Insurance is nearing a significant turning point, one that has the potential to revolutionise the sector’s relationship with customers and the public in general. Those with foresight, initiative and more than a little single mindedness will transform the sector.

At the heart of this revolution will be big data. Yet it will not be the data itself which will drive events. The sector’s been through several data revolutions before and while this one will certainly be big, the game change will come not from how much can be accumulated but how it is used the forge a new relationship with the customer.

Data counts for nothing. It’s the information running through it and the insight that can be drawn from it that matters. And such insight matters not just to the insurer, but to the customer as well. The game changing insurers will recognise that dual dimension and use it to forge that new relationship with the customer.

Rather than hiding that information away down dark and mysterious data mines, in the hope that tight control over it will yield some form of competitive advantage, game changing insurers will actively share it with customers and use it to extract information and insight that customers value. Transparency will be at the heart of this new engagement with customers. It will be a more personal engagement, tailored to the particular needs and preferences of customers, who will have given it their consent in return for a clear exchange of value.

Is it too much to think of a Twitter or Facebook of the insurance world emerging over the next five years? I think not.

Insurance will come closer to customers, like an virtual passenger in the car, or a virtual nurse at home. Customers will allow that closeness to develop if they feel confident that it will be helpful for them. Declarations that confer open ended rights to insurers will go out the window, to be replaced with clear levels of agreed consent. Gone will be annual renewals that look more like legal documents than inviting offers. In their place could be online dashboards highlighting key aspects of your driving performance over the past few weeks, with plenty of drill down options to find out more. Or online health profiles highlighting the implications of your recent exercise regime or festive blowout.

That closer relationship between insurer and customer will come to rely on an openness that the sector has never experienced before. The game changing insurer will recognise that to deliver that openness, it will need to develop not just new ways of thinking, but new ways of behaving with customers. Ethics and insurance will never be more reliant upon each other than they need to be in this new world of insurance.

Posted in Overall Market, Sales and Marketing, Underwriting | Tagged , , , , , , , | Leave a comment

Assumptions about flood

Posted on 17 April 2012 by Duncan

There is an agreement between the insurance industry and the UK Government called the Statement of Principles, under which insurers are obliged, in virtually all cases, to offer flood cover as part of a standard household policy. It was last renewed in 2008 and is up for renewal again in 2013. Negotiations for that forthcoming renewal are generating considerable debate, both in the national and trade press. The problem for policyholders is that one key development has slipped through unnoticed. It has to do with the transparency of underwriting assumptions about flood risks.

The insurers’ trade body, the Association of British Insurers, has accused the Government of not living up to its side of the agreement, by failing to maintain an adequate level of flood defence spending. Yet has the insurance industry been living up to its side of the agreement? Are ABI members consistently offering flood cover as part of a standard household policy?

The Statement of Principles allows household insurers to charge competitively priced premiums for properties at risk from flood. Insurers like Aviva are putting through 80% rate increases on the policy’s overall premium as a result. This will cause many of the policyholders affected to seek alternative quotes. Many will do so through price comparison websites. Such websites don’t address flood insurance per se, prefering instead to point out towards the end of the quote an assumption that the property being insured is not in a flood area. Flood maps on Government websites allow policyholders to check whether their property is in a flood area.

Price comparison websites then invite the proposer to click through onto the website of a particular insurer to find out more about their quote. I did this recently and then set about trying to find out more about the flood cover being provided. The result was disappointing to say the least. Tucked away on insurer websites were ‘eligibility criteria’ pointing out that the property was assumed not to be in a flood area. And when I say tucked away, I mean that it took me, a qualified insurance professional, several minutes to find them. No option existed to enter further details in order to get a more tailored quote. This is despite the the flood risk for the property in question being clearly set out in information fully in the public domain.

Previous posts have highlighted the dangers inherent in the overuse of such ‘assumptions’. It’s clearly an issue not just for price comparison websites, but for those of some insurers as well. Combined with very significant price increases, those assumptions will lead a great many policyholders to not be offered flood insurance and at the same time, not release that the policy they’ve taken out didn’t include flood insurance. The situation is not one that consumers will feel is over endowed with those cornerstones of financial regulation, honesty and integrity. Some may even see signs in it of a flood de-risking by the sector.

The ABI, and those of its members with a significant involvement in the household market, need to take a number of steps:

  • review the use of underwriting assumptions about flood areas in the context of the commitment it has given to the Government and consumers through the Statement of Principles;
  • make sure that assumptions about flood areas are displayed in a prominent position on members’ websites so that consumers can make an informed decision;
  • stop talking about affordability and flood insurance in the same breath, for not even low income households are being let off enormous price increases for the flood element of their household premium.
  • demand higher standards for the advice being given to consumers by their members’ contact staff. The most amusing claim made to me was that the Statement of Principles only applies to the ABI and not to its member companies.

I should point out that I eventually came across a broker’s website that asked intelligent questions about the flood profile of the property I was seeking cover for (it wasn’t my own) and provided me with standard cover at a reasonable and affordable premium.

Posted in Overall Market, Sales and Marketing, Underwriting | Tagged , , , , , , | 2 Comments

Dangerous add-ons

Posted on 12 April 2012 by Duncan

Which? magazine published an interesting example recently of how to force the purchase of an add-on insurance product. The airline Ryanair has set the sale of travel insurance on its website to default to purchase unless you select the ‘don’t cover me’ option in a drop down menu. The problem for the consumer is to find the drop down menu with that option. It turns out to be in the ‘Please select a country of residence’ menu, positioned rather oddly between Latvia and Lithuania. Needless to say, Which? was not impressed 

The mis-selling of payment protection insurance provided the insurance sector with a great many lessons to learn about how its products should not be sold. Making it difficult or complicated for the customer to turn down the insurance add-on was one such lesson. Yet Ryanair is clearly acting as the agent of an insurer who has not taken that particular lesson on board. The regulator of whichever jurisdiction the insurer operates from should look into this.

 

Some argue that the insurer, as just the product’s manufacturer, isn’t really responsible for what others get up to with its product. That’s not a very strong argument however, for any underwriter of product liability will tell you that you can’t entirely wash your hands of how others use your product. This is even more the case when it’s the insurer who appoints the  agent and in so doing takes on responsibilities for that agent’s conduct.

 

Insurers need to view their products, and the things others get up to with them, with a ‘lifecycle’ perspective, from the data upon which the cover is designed, to the value the consumer receives from having claimed upon it. If such a perspective proves elusive for the insurer, then it needs to take a closer look at how its marketing, underwriting and claims departments are coordinating their work. More than just their reputation for honesty and integrity could be at stake.

Posted in Claims, Overall Market, Sales and Marketing, Underwriting | Tagged , , , , | Leave a comment

Telematics and privacy

Posted on 2 April 2012 by Duncan

Telematics looks set to transform motor insurance over the next 5 to 10 years, just as personal health monitoring devices will do likewise for health insurance. Both will be a clear step for the insurance market towards the world of ‘big data’. Not just lots of data, but lots of highly sensitive data. How this wealth of data is handled raises all sorts of ethical questions.

Telematics involves the fitting of a black box device to a vehicle, so that it feeds real-time data to your insurance provider about where, when and how the vehicle is being driven. This data will then be used to calculate the premium. It’s a sophisticated form of ‘pay as you drive’ insurance. Indeed so sophisticated that its advocates claim to be able to detect which person is driving the vehicle, based upon individual patterns of cornering, turning and braking. In five year’s time, most motor policies are expected to be underwritten using telematics.

Personal health monitoring devices work in a similar way, providing your insurer with regular data about how you’re looking after yourself, using a range of health indicators. That mad dash in the car to the fish and chip shop could have widespread insurance implications.

Both technologies will bring the insurer into a much closer relationship with their policyholder. To avoid that closer relationship becoming too uncomfortable and intrusive for the policyholder, the insurers and telematics providers need to recognise and actively address the confidentiality issues associated with big data.

While there has been talk of common standards, the debate has largely been about technical and competition issues. It’s being held amongst insurers and device providers, seemingly without input from those with more of a public interest perspective. Several insurers are starting to recognise some of the issues raised by such devices, but their conflicts of interest hardly make them reliable advocates for a balanced solution.

The number of telematic devices in use is relatively small and a window still exists for a wider debate to take place before exponential growth kicks in.  It will need to cover points such as the following:

  • Who owns the data collected through telematics technology?
  • If it is the customer, how can they put that ownership into practical effect at key points in their policy’s lifecycle? An obvious example is when seeking alternative quotations at renewal.
  • If it is not the customer, then who does own it and what rights does the customer have in relation to collection, interpretation, use, access, transferability, sale and retention.
  • Should there be limits on the extent to which telematics data can be interpreted and the uses to what that interpretation is then put?
  • How would such limits be monitored and controlled?
  • What form of consent should the insurer using telematics data have to obtain from the customer and how upfront and transparent should the insurer be about the uses to which they will put the data being collected?
  • Should there be one form of consent or tiered consents offering different forms of value to the customer?
  • What information security standards should insurers using telematics be required to meet?
  • How does the insurance sector work to a common standard in relation to the above questions and how does the customer have a say in the setting of such a standard?

These are not ‘nice to know’ points, but ones that need to be recognised and addressed quickly  in order for the insurance sector to undergo this seismic shift in underwriting practices without coming massively unstuck.

Posted in Overall Market, Regulation, Underwriting | Tagged , , , , , , | Leave a comment

Investing in Integrity

Posted on 30 March 2012 by Duncan

A new charter mark for business ethics has been launched by the Institute of Business Ethics and the Chartered Institute for Securities and Investment. Called Investing in Integrity (IiI), it has been designed to:

enable an organisation to reassure all its stakeholders – employees, customers, suppliers, shareholders and the general public – that its business can demonstrate a commitment to act with integrity at all times.

Gaining accreditation to IiI involves a two stage process: firstly, a self assessment submission covering ethical policies, procedures and practices, and secondly, a verification process carried out by Good Corporation, involving site visits, policy and system reviews, staff interviews and an employee survey. The IiI charter mark will last for 5 years and be open to companies from around the world.

Balfour Beatty and IMI took part in the initial pilot and have gained the IiI charter mark as a result. Good for them and for any others in the pipeline.

You can look at initiatives like IiI on two levels: firstly, that of intent and ambition, and secondly, that of quality and traction. Clearly , its intent and ambition are to be admired and supported. I wish the IBE and CISI every success with it.

The challenge they face however is around its mid to long term quality and traction. It needs to tread a delicate balancing act between drawing in enough accreditations to show that it is gaining recognition and making a difference, whilst also maintaining a level of quality to show that it is setting a challenging but achievable standard.

Some rating projects have struggled to maintain  this balance. Business in the Community’s Community Mark set relatively high standards but has so far failed to draw in many organisations and is not that well known. The UN signed up a large number of companies to its Global Compact, but has found imposing a quality threshold rather difficult. My humble opinions, of course.

FTSE4Good seems to have got that balance about right, by setting standards that seem achievable to most companies and then progressively raising and broadening them in a way that no one already committed should struggle to meet. They were also clear from early on about removing companies who failed to comply, and have done so as part of its regular review process.

A process for removing non complying companies is something that IBE and CISI need to have a clear plan on from day one. A lot can happen in a company in the 5 years that an IiI accreditation lasts and preparing now for some ethical ups and downs along the way would be time well spent. While the IiI accreditation process does require the charter mark holder to self assessment their continued compliance on an annual basis, it’s not a safeguard that the IBE and CISI should overly rely on.

One step that would build greater confidence in the IiI is transparency around the accreditation results. The IiI website should be populated with data (qualitative and quantitative) showing the performance of each charter mark holder. Including the name of the director who self assesses their company’s ongoing compliance would also help focus minds around that process. Ethics and transparency are inexorably linked.

So who will be the first organisation from the insurance sector to become a IiI charter mark holder? Perhaps the Insurance Institute of Ireland – ‘III awarded IiI’ would make a good headline.

Posted in International, Overall Market | Tagged , , , , | Leave a comment

Assumptions and Transparency

Posted on 27 March 2012 by Duncan

I’ve commented in previous posts on the ethical implications of how price comparison websites balance the questions they ask about you, with the assumptions they make about you. This issue has been in the media spotlight again recently.

Which? published a report last week about the issue and voiced concern that customers weren’t being treated fairly. The Financial Services Authority (FSA) said the report echoed some of its concerns about price comparison websites (also known as aggregators). Here’s some of what the Which? spokesperson had to say:

“Our research shows you will often get very cheap looking quotes from a price comparison website. When you click through to buy the insurance, you will get a far higher price from the insurer.” [He went on to say] that some car insurance searches featured pre-selected boxes, to make a quote look cheaper, but this figure went up when the search was personalised with the insurer.

“They will assume that your car is always parked on the drive or in a locked garage. If you park on the street, when you go to click through to the insurer you will get a far higher quote than you would have done on that comparison website.”

Two factors underlie an aggregator’s approach to assumptions. On the one hand, they know that customers don’t like to answer page after page of questions, so an aggregator who keeps questions to a minimum will draw in more customers and earn more from click throughs. On the other hand, customers are also attracted to aggregators who offer quotes from as many insurers as possible, which then leads to greater variation in the underwriting information sought by insurers.

Assumptions are a way out of this conundrum, but a far from perfect one. An insurer wants them to be set so as to keep their quote low, as the above parking example illustrates. This pushes their name towards the top of the quote screen. For the consumer, assumptions tilted overly towards the interests of the insurer result in initial quotes that bear little resemblance to the final premium sought by the insurer. All too often, those assumptions are difficult to find.

I remember looking on an aggregator last year for household insurance, finding a good quote from a leading banking group and, on speaking with them about confirming their quote, being more than a little surprised to find my initial quote increasing by more than 10% just because I had three children (even though cover was standard, not AD). Rather than click with the mouse, I went clunk with the phone.

Aggregators are not some form of neutral, technological link between consumers and the market place. They have significant business relationships with both insurers and brokers. As such, they have just as much need for a conflict management policy as any other service provider in the market.

That need is only going to get bigger. With the Consumer Insurance (Disclosure and Representations) Act 2012 now passed into law, insurers will be looking more closely than ever at what they want to ask and when it is in their interests to ask it. Aggregators need to become a lot more transparent about the assumptions they use, when they’re made and the implications of each for the customer, otherwise customer satisfaction with their service will continue to be eroded.

Posted in Overall Market, Regulation, Sales and Marketing, Underwriting | Tagged , , , , , , , | Leave a comment