Will financial inclusion be even more difficult to deliver now?

There are structural changes underway in the UK insurance market that seem to point to financial inclusion becoming even more difficult to deliver than in the past. And if this is the case, then I think that the regulator will trigger some form of intervention. And it could be seismic. Here’s why.

In March 2015, the FCA’s Director of Strategy and Competition said that “the responsibility for regulating consumer credit has fundamentally changed the FCA”. And in a speech in November 2014, the FCA’s chief executive talked, against that same backdrop of consumer credit regulation, about the combination of data, technology and behavioural science heralding a new era of regulation in financial services. The FCA knew that they had to address some pretty fundamental problems with the payday loan sector: the way in which they did so represents that ‘new era’.

I explore the implications of that ‘new era’ of regulation in this blog post and, in greater detail, in this paper for the Chartered Insurance Institute. It’s what could be called the ‘digital panopticon of insurance regulation’. And let’s illustrate what that might feel like with another quote from the report we started this series of posts with, from the Financial Inclusion Commission. This caught my eye:

“Six in ten disabled people turned down for insurance said that it was because of their impairment or condition. One in five disabled people feel they pay more for insurance because of their impairment.”

That quote caught my eye because I was once Head of Insurance and Risk Management at what is now called Motability Operations, which delivered financial and operational support to a customer base of around 600,000 people with disabilities, each of whom leased a vehicle through the scheme.

It wouldn’t take much for a regulator empowered with technology and the behavioural sciences (and emboldened by what it learnt from carrying out its payday loan review), to ask insurers about those 6/10 and 1/5 statistics. How do insurers monitor such issues? What story does their own data tell? And of course, these questions would be asked against the backdrop of there being very little to stop the regulator from turning on some data taps and checking the situation for themselves. That’s the power of the ‘digital panopticon of insurance regulation’.

So what might a chief executive or a chief technology officer do in preparation for such questions? Here are two suggestions. Firstly, address both sides of that inclusion coin I talked about earlier and make policy commitments on inclusion and customers, on a one-to-many basis as well as a one-to one basis. Of course this could have all sorts of implications for a modern insurance business, but then, who said ethical leadership came easy!

And secondly, take all that investment in big data and analytics software and point it in the direction of the issues raised in that earlier quote about people with disabilities. Find the correlations associated with such consumers and share the insight that emerges. Better to do so before the FCA gets there first. And if there’s one insurer who really should lead on this, it’s Royal and Sun Alliance. They’ve been the insurer of the vast Motability fleet and its customers for about twenty years now, from when it was around 300,000 in size when I first worked there, to its present size of around 600,000. That adds up to several billions of pounds in premiums (with the odd claim or two in return of course), plus new streams of income from the household insurance it is now selling to Motability customers.

In summary, buying the insurance we need is not going to get any easier. Structural changes underway in the insurance market will widen the pool of people who find their insurance needs not being met. The regulator’s response will be based around fairness and will increasingly be based upon panopticon style interventions. Insurers need to keep ahead of them in order to rebuild trust.

I’ve brought a lot of points together in this series of posts about insurance and inclusion. That’s because the ethical landscape for insurance is made up of many linked themes. And that can equally be a challenge for insurers, both in terms of recognising and navigating that landscape, and understanding how one decision can influence another. And while I know you’ll be thinking that ‘he’s bound to say this, isn’t he’, it’s how I add value as a consultant.