Is signposting as ethical as the market believes?

Signposting arrangements are being established across a variety of retail insurance markets. The aim is to help consumers find the cover they need. And while there’s a lot of good in that, there are definitely two sides to this coin. Signposting is also a symptom of a stratifying market and that comes with all sorts of ethical implications.

Signposting arrangements are triggered when the consumer is unable to get the cover they need at a reasonable premium from the provider or adviser they’re engaging with at the time. That provider or adviser should then direct the consumer to a signposting service that then points them in the direction of another provider / adviser who has indicated that they are willing to underwrite the type of risk that that consumer represents.

There’s a lot of good things in this. The consumer is more likely to find the cover they need at a reasonable premium, and the market benefits from providers getting more of the business they were looking for. That’s why leading insurance figures see signposting as ‘the right thing to do’.

More intermediation

Some of you may be questioning at this stage though why signposting is needed in a market so full of brokers and advisers. Shouldn’t they already be doing the job of that signposting service? Well, what this tells us is that insurance intermediation has become more specialised. Gone are the days when a single retail broker or adviser would be able to find cover for any consumer that came to them. So signposting in effect introduces a further level of intermediation into the market. Given how many layers already exist in placement supply chains, this is bound to have consumers, and consumers groups, scratching their heads. Just how complex does insurance have to make itself!

Putting that further level of intermediation aside, there is of course value to consumers in being pointed towards a provider more likely to be able to meet their particular needs. It has the feel of a market going an extra step to meet the extra needs of certain consumers. The question of course is just how much value does signposting deliver? The answer is, at present, that we do not know.

Being pointed to a more suitable provider is fine, so long as that makes it more likely that the consumer is able to find the cover they need. Anecdotal evidence that I’ve come across has people giving up after being signposted four or five times without success. The impression they’re left with is that signposting is a sticking plaster for gaps in insurance provision.

Getting the right feedback

What is needed therefore, as use of these signposting arrangements picks up, is evidence that the market is not just playing musical chairs with some consumers. So when I referred a few paragraphs back to ‘value’, I mean detailed statistics not just on how many consumers have been signposted, but on a variety of other aspects too:

• How many times are people being signposted before finding what they need?
• What level of multiple are the rates on offer compared to that provider’s standard rates?
• To what extent did the consumer feel that their needs were understood and catered for?
• Is the spectrum of consumer needs being dealt with through signposting broadening?
• How did consumers (all, not just the successful ones) find the overall signposting experience?

I’ve been told that consumer feedback is going to be an important part of recently launched signposting arrangements. That’s great, but there should be caveats attached. That feedback needs to be obtained in a systematic and representative manner. It is all too easy in arrangements like this for consumer feedback to ‘tell you what you want to hear’ and for the power dynamic in this particular segment of consumer/provider relations to produce warped results.

I once did a lot of work with an insurer to strip that power dynamic out of a feedback equation involving a large pool of people with disabilities. It was ultimately successful, and a lot of that success was down to the insurer having real empathy with the consumers involved and having a real commitment to get it right. So, a challenge – it can be ; achievable – yes.

The other side of the coin

I opened this post with reference to signposting being a two sided coin. What I’ve covered so far is one side of that coin, the side that emphasises its value, but raises questions about scope and delivery. Now we’ll look at the other side of that signposting coin.

What that second side of the signposting coin tells us is that retail insurance markets really are changing. Personalisation is causing insurers to increasingly focus on identifying lower risk individuals and offering them tailored price and cover. Those who don’t fall into that category are left to be satisfied by the wider market. Hopefully.

The need for signposting is a symptom of a stratifying market. And by stratifying, I mean when some people are finding it easy to find the cover they need at a price they find reasonable, but at the same time, other people are finding that more and more difficult. Some of the latter have to pay well above market rates to participate in the market, while the rest are left with little or no options.

Stratification is a symptom of a market that is focused more on personalisation and less on updating underwriting attitudes to consumers who do not present what in some in the market refer to as ‘clean’ lives. These are the lives that can be underwritten without the need for paperwork or reports, as the insurer’s data analytics are predicting them to fit within the low risk appetite of their underwriting strategy. Many providers have orientated their business models around such risks, enabling such business to be taken on quickly and easily.

The different faces of progress

This gives markets undergoing stratification an air of being competitive, but this is usually only in those consumer segments that present clean lives and that are able to actively engage with the market. It also gives such markets an air of ‘insurtech’ modernity, delivering lots of affordable cover at the touch of a button. Meanwhile, those consumers who are different in some way face hurdle after hurdle and struggle to find the right cover.

Am I perhaps bringing out too much of a ‘pot half empty’ view? I don’t think so. I was warned several years ago by an extremely well informed individual in the UK insurance market that stratification was taking hold. That view has been reinforced by events since then. So I’m presenting a ‘warning scenario’, seeing signposting as a symptom of a serious, underlying problem – stratification.

I’m not alone in this. In 2019, in evidence to the Treasury Committee’s review of consumer access to financial services, Age UK had this to say:

“Age UK would like to see a review of how the signposting service is working for older consumers–not just in terms of the numbers of referrals, but the outcomes, i.e. whether people are able to get the cover they need, at a reasonable price. However, the wider question is whether the market as a whole is working for older people. Age UK’s strong preference is for a mainstream market that keeps up with the needs of our ageing population and maintains the largest possible risk pool.”

Is it too late for change?

Is Age UK trying to go one better than King Canute and actually turn back the waves of digital change? No, not at all. What they are saying is simple and twofold: meet the needs of a significant segment of consumers (one which most of us will eventually become part of), and have a market that in overall terms caters for all as a norm. If this can’t be done, then is insurance in effect a market undergoing not success but failure?

Is this all too late? Has the ‘personalisation of insurance’ horse already bolted, the stable door left swinging in its wake? Possibly, but I am convinced that there is still some way to go in its development across the many different insurance markets, and the need and value of a debate about its implications is still strong.

So to conclude. Signposting can deliver value in the short term to an under-served segment of consumers. Unfortunately, it also heralds the growing impact of a more fundamental problem that could become more and more serious in the mid to long term. It is a bellwether for the impacts that personalisation could have. And as that bell starts to ring, the market needs to listen.