Is the Go Away Approach Right for Digital Insurance?

The idea of using go away prices at renewal emerged because having a renewal refused has always been declarable. In pre-data sharing times, one insurer wouldn’t know that another insurer had decided that an insured was in some way ‘no longer welcome’. The ‘go away’ renewal sent the signal to the consumer that they weren’t wanted, but haven’t had their renewal refused. Even then, they could still pay a silly price if they didn’t go elsewhere.

'Go away’ renewals have not gone away, but instead their use has broadened across lines of business. And they’ve also moved upstream, in the form of ‘go away’ processes. As a result, the signals they send out are more varied and, to be honest, more questionable. I’m going to explain why their wider use feels like a bad habit that the sector needs to think twice about, and one which is, I think largely unbeknown to insurers, undermining their credibility.

Signals Matter

Pricing signals matter because they are what consumers received most of from insurers. The most material communications exchanged over the period of a year between insurer and insured is ‘this is your renewal premium’. So the reasonableness, the sensibleness, the rationality of insurers are judged at those annual points in time.

So why are ‘go away’ renewals becoming more widespread?. The digital capabilities that systems provide to underwriters are largely responsible for this. These systems allow underwriters to move in and out of this big segment, that small segment, in the search for performance and profitability. Things are less fixed now, much more fluid.

Often that fluidity is at the micro level, but macro outcomes are not a rarity. It’s not unknown for very straightforward policies to experience 200 to 300% increases at renewal, without any change in risk, without any claims, and so on. In short, without any reason that the person on the Clapham omnibus can see.

Conflicting Messages

The result are policyholders who feel junked. And not by specialist players in this or that market, but just as much by the big mainstream players, the household names. And I think this is beginning to have knock-on effects. ‘Do these people know what they’re doing?’ is a typical question (the polite version). And of course, they’re rhetorical – the answer is in the question itself. Insurers like to push narratives about being big, sophisticated, caring and innovative, but their use of go away premiums says the exact opposite.

What we have then are millions of pounds being invested in more and more data, in ever more powerful analytics, to fine tune premiums in ever more sophisticated ways, and what a chunk of consumers experience is, as I’m told, blunt, senseless and hurtful.

Do ‘go away’ premiums still have a validity? In these days of digital sophistication, they feel like a blunt club yielded by a caveman. They feel like a corrective device for when something has gone wrong (hence ‘do they know what they’re doing’), used by an insurer who seems to be, well, in a bit of a panic.   

Undercutting

Go away premiums undercut two big ambitions of the sector: customer relations and cross selling.

With customer relations, they message to customers that they really are commodities, to be acquired and disposed off according to what the system says.

And in relation to cross selling, they close doors. If ‘they don’t know what they are doing’ in one line of business, ‘why should l consider them’ for other types of insurance. In short, the gain from go away premiums comes at the cost of trust and income.

Go Away Servicing

One use to which all that investment in underwriting transformation has been put is the speeding up of quote stage risk assessments. Terms like accelerated, augmented and straight through are common adjectives in underwriting strategies now. Yet such terms describe a progressively partial situation. That sophistication in underwriting is often another way of saying that the insurer uses a lot more data in their underwriting, and when all those data hoops are in line, underwriting servicing is fast.

The aim is to make insurance more accessible. Take life insurance. The sector thinks that it takes too long for someone to take out a policy and so invests in making it quicker. The problem is that for all those who experience that speed, that responsiveness, there are many who experience the opposite. The data hoops tend to line up mostly for ‘clean lives’, being those most sought after by insurers. And many of you will say that there’s nothing wrong with that. And you will be right, but only to a point.

A good number of clean lines only stay clean for so long. Over time, lives can acquire the health profiles that move those data hoops out of line, and push their business into the slow service lane. At that point, the investment in accelerated underwriting starts to feel like an underinvestment in technical underwriting. And by this, I don’t just mean underwriting service that is not fast, but underwriting service that feels like ‘go away servicing’.

Could this be down to expense optimisation? The logic here goes something like this: why should clean lives pay more because less clean lives require more scrutiny? The result is an under resourced ‘service slow lane’, premised upon the notion that more considered judgements take longer and if consumers really want a quote, they should be prepared to wait, or else, ‘go away’. After all, theirs is not really the business that the insurer is after, otherwise the insurer would have accelerated the processes for handling them.

I’m not saying that all insurers think in such direct and stark terms, but I do worry that some may think in such terms and others reach much the same position by inattention.

Is it Fair?

Some of you will be thinking along the lines of ‘OK, it isn’t brilliant, but it’s not unfair’. I would urge those people to think again, and to use the following ‘mindset game’ to learn why.

Start by imagining what is called a ‘veil of ignorance’. Drape it over yourself and let all you know, be it personal or professional, disappear. You know nothing about insurance, underwriting, pricing, markets or business. You know nothing about how well off you are, what health you have, what options you have in life, and what the future is likely to hold for you. Now weigh up the pros and cons of ‘go away pricing’, and of ‘go away servicing’, for yourself, personally.

What happens is that you become exposed to both, most likely as never before. And you also become exposed to their repercussions. Will they offer me a quote? Will the quote be affordable? Why won’t they offer me cover? Can I find cover elsewhere?

Another Street Pricing

In exposing themselves to such scenarios, underwriters are experiencing the range of situations that consumers experience. Perhaps for the first time. And by doing so, notions of what is fair and what is unfair invariably change. For sure, this mindset game doesn’t mean that everyone gets a quote with an affordable premium. Fairness operates at both the personal and pool levels. What it does do though is take the underwriter out of their ‘professional tower’ and puts them, so to speak, ‘on the street’, to understand the everyday outcomes that people experience from those pricing strategies.

And in so doing, some of what is happening around go away pricing and go away servicing begins to look less fair, more in need of change. It is of course where we are, but it now feels less like where we want to be.

Of course, if you’re preparing a board presentation on what those changes should be, the ‘veil of ignorance’ mindset game is unlikely to change everyone’s mind. It works more on the personal level than the group level. So instead, here are some points that could be used:

• go away pricing and servicing undermine growth strategies that rely on cross selling;
• they have a long term impact on customer loyalty because they signal an unordered approach to pricing. We become less credible people to be insured with. As a result, churn rates become harder to move down.
• They increase overall acquisition costs for new business and decrease overall retention rates for existing business.
• They are a throwback to when the market was siloed on declinatures. As that is no longer the case, they are an out of date hammer in danger of being overused.
• If better customer relationships is a corporate goal for the firm, then that relationship needs to at best be priced into the renewal ; at worse, our pricing shouldn’t destroy it.

To Sum Up

Go away pricing and go away servicing are being used more widely than need be. If the sector’s ambition to improve customer relations is to be in any way achievable, then the go away approach needs to be pulled apart and reassembled to fit with today’s markets and the digital transformation insurers talk about.

For some, it does signal a risk problem, but for many more, it signals the sector’s credibility problem.