Let’s begin first though with an obvious question: why bother? After all, isn’t it something that has been talked about in financial circles for a fair few years now?
That’s right of course, but unfortunately, there’s also enough evidence to show that insurers and the regulator have some quite significant gaps in how they think about detriment.
Take price walking as an example. Between 2015 and 2018, the regulator had plenty of evidence of what was happening, but decided to label it as a reasonable market practice. The super complaint proved them wrong. And some insurers knew too that price walking was probably not a good idea, but felt unable to stop for competitive reasons.
The CEO of a leading insurer once told me how much they would lose by stopping price walking. It was a big number, but then they were a big insurer. Yet no one in that meeting saw that big number for what it also was: an indicator of the scale of detriment being extracted from their customers. So competition can bring many benefits, but it can also generate and lock in detriment.
Then there’s discriminatory pricing. Again, the regulator has been aware of this issue for several years, even boasting to the Treasury Committee about how they had the expertise and resources to ‘pick inside those insurance models’. Back then, in 2019, the committee told off the regulator for relying on the word of insurers that they didn’t discriminate in their pricing. Yet five years later, in 2024, the regulator’s response to further questions about bias in motor pricing was...
“We recently asked the largest motor insurers to show us how they ensure their pricing models do not discriminate based on ethnicity, and we are reviewing their responses.”
This doesn’t seem to signal an organisation willing to move up that learning curve at any speed.
The Forest Level
To these two issues can be added further examples relating to access to insurance, about transparency, about service, about choice, and so on. Detriment comes in many shapes and forms. And in each of those forms, there are people working to address the issues. There’s a lot of upside to all that focus and expertise, but one downside is that detriment is not always fully engaged with at the forest level.
Now, I should be clear at this point that I have far less experience in consumer detriment than many others, and with limited lived experience of what it involves. So what can I bring to this issue? What I am told I bring to such situations is the linking of issues and developments; the influence of a tilt emerging here, a nudge there; the reading of complex situations for the connecting pathways; a long experience in reading the sector and what it is thinking and doing around the ethical issues that weave their way in, out and around this significant thing called detriment.
Dimensions
I believe that consumer detriment has several dimensions to it, and that in any one situation, these are all in play to some greater or lesser extent. Here’s an outline of them.
Scope: this is about the range of issues that fall within the scope of what you mean by detriment. Some scopes reflect economic constraints, and others reflect political and social conditioning. It also is influenced by how you ‘see’ the consumer: as a rational actor in an economic market, as a person with only certain capabilities and resources, or as someone with agency and responsibilities; or some mix of all of these.
Responsibility: this follows on from scope, and is about who is seen to have responsibility for tackling such and such a form of detriment. This usually emerges as gaps, rarely as overlap. Again, it often reflects economic constraints, but also political and social conditioning (how you ‘see’ an issue).
Depth: this is about the scale of impact that different consumers experience from a particular type of detriment. Developments often impact some people much more than others: in other words, many consumers lose a penny, but some lose a pound.
Time: this is about the accumulation of incremental detriment, to the extent that it eventually scales to a considerable extent. So what starts out as relatively innocuous may end up developing into something that needs serious attention.
Group: this is about how some forms of detriment are most discernible when viewed through the ‘group lens’, as opposed to what any one consumer might experience. It can happen that some detriment becomes concentrated in and around particular social groups.
Perspective: this is about the direction from which detriment is seen, interpreted, quantified and then interpreted again. Woven into this will often be imbalances of power and influence: for example, around who gets to choose what and who is significant or not.
At this point, many of you will be complaining about this being more complicated than tri-dimensional chess in Star Trek! My only defence would be to think of them more as testing pathways instead.
Some Examples
Let’s look at some examples. Price walking became an issue not just because the sector saw it as a profitable way of increasing market share and revenue, but also because the regulator didn’t see the unfairness it promulgated as something that fell within the scope of its responsibilities. That made the reference to fairness in its Principles for Businesses rather puzzling, to say the least. The then established view was that market dynamics decided what was a fair price. In other words, if everyone was doing it, then it was fair, even if it patently wasn't.
Discriminatory pricing and price walking were labelled by the regulator as social policy issues that weren’t their responsibility. Yet the regulator knew that all the resources and expertise to address these issues was theirs, and boasted about how they could put them to use to the Treasury Committee in 2019. The result however was large amounts of inertia, generated by a culture that talked loudly about ‘not doing ethics ; not doing social policy’. You had the odd situation then that a conduct regulator didn’t see bias and fairness as something they needed to address.
Similar problems are at the root of the poverty premium, where low incomes families pay more just because of being on lower incomes. The regulator resisted taking responsibility for addressing the problems associated with it, yet in the end was forced to take it into consideration by its political masters. This was a depth issue, whereby developments in the market resulted in micro detriment for some but macro detriment for others. That macro detriment was seen by the regulator as entwined in social policy, but that turned out to be a political misjudgement.
One of the reasons that the regulator failed to see the impact of price walking could have been because the well off, young to middle aged professionals working there saw the outcomes that price walking was producing in purely economic and market terms. So an overpayment for house insurance of say £200 after five years of price walking was judged not to be a problem. Yet the group who experienced most price walking was the elderly, who would have seen £200 as less pension to spend on things like food and heating. £200 is what an average person spends on food in about two months. The perspective you take influences the impact you recognise.
Holding Back
So where am I heading with all this?
My point is this: few in and around the insurance market seem prepared to grasp consumer detriment in its broadest sense and take steps to understand and address issues around scope, depth, responsibility, etc. The sector prefers to remain in reactive mode. The regulator chooses to wear an economist hat and seems unable to see things through any other lens. Most consumer groups stick to their specialist areas, understandably due to a mix of resource constraints, turf awareness and policy expertise.
The outcome of all this is that insurers are not showing enough joined up thinking, too little forward thinking, not enough sectoral leadership in terms of consumer detriment. Why is this needed? Because it causes the sector to move forwards and backwards too much, innovating in relation to the latest opportunity, becoming wary as detriment questions arise, and then moving backwards when addressing the fall out. It's an approach that is holding back the sector in relation to the progress it could be making.
What has been lacking are people with the power and influence to run with what we might call a definitive detriment map and use it to urge caution here, reflection there or green light elsewhere, from within the sector, or at least close alongside it. A map which insurers could learn to better navigate, in order to give the sector and the public a decade or more of responsible innovation that accords with the tenets of social justice that we take for granted, both as citizens and consumers in other markets.
Stirrings?
Interestingly, it seems possible that the digital transformation happening in the sector may have triggered the beginnings of such forest level mapping, such navigational learnings, in order to address the systemic level impacts that are being recognised. Theories around social justice are starting to be applied to what the sector is doing, to make sense of the implications they give rise to. It’s early days, but some signs are there.
How will insurers, trade bodies and professional bodies respond to this? There are not many insurers far sighted enough to stand back so far and grasp both the upside and downside of where the digital transformation is leading the market. Some reinsurers perhaps, but again, early days.
And the trade and professional bodies? I’m not convinced that either, being so embedded in the market, are yet willing to use their positions of influence and power in this way. Yet both will be thinking that their positions of power and influence are not what they used to be, and are unlikely to be recovered.
Three Reasons
I will end by returning to my starting question – why bother with forest level mapping of detriment? Here’s three reasons…
Firstly, the last ten years has seen a rise in insurers being held to account for various forms and depths of detriment. Insurers need a better map and better navigational principles to navigate not so much individual situations but the overall trend.
Secondly, the sector feels that it’s too often being challenged, too often the target of new regulation. One reason for that is its failure to grasp and engage with detriment at the forest level. I say ‘failure’ because it is not as though it lacks the capability to think that way. After all, it abounds with narratives and programmes addressing the forest level opportunities of digital transformation.
Thirdly, the sector is too often delivering a narrative that is out of kilter with societal expectations. There’s too much denial, too little critical thinking. As a result, the gap between what it wants and what it gets, widens. Insurers may often struggle to win the hearts and minds of consumers, but now they’re having the same problem with policy makers. For sure, they’re winning certain battles, but it looks like they’re losing the war.
Wrong Philosophy?
The philosophy of the time is for insurers to push on urgently with digital transformation, for as much survival as competitive reasons. If they have to deal with detriment issues along the way, then that’s the price to be paid. Yet for the investments that digital transformations involves to generate more than just the occasional bingo return, pushing on in seemingly regardless ways is becoming increasingly risky.
To end on a rather blunt example: just ask life underwriting strategists at EU insurers where ‘push on regardless’ has now landed them.
