Insurance: The Root Causes of Low Trust
There are two sources of evidence to identify the causes of low trust in insurance. The first is the growing wealth of survey data commissioned by insurers. The second is the success of insurtechs. However, our research points to six causes of mistrust in insurance.
Just one in five customers across the United States, the United Kingdom, France, Germany, Italy, Japan and Switzerland consider insurers trustworthy. In the UK, two-thirds of consumers believe their insurer will do what it can to avoid having to hand over money. A remarkable figure, given 98% of claims of most categories are paid out.
The Chartered Institute of Insurance (CII) calls low trust “bleeding obvious”. What is less clear are the causes of public scepticism. Academic research is thin. Two academics from the Geneva School of Business and the University of Limoges researched the literature and concluded: “While the importance of trust in insurance is widely recognised, surprisingly, existing literature on the determinants of trust in insurance remains scarce.”
Outside academia there are two sources of evidence to identify the causes of low trust. The first is the growing wealth of survey data commissioned by insurers. The second is the success of insurtechs: these new providers exploit low trust to launch new business models. Their ability to leverage dissatisfaction is proof positive of where incumbents are failing.
Our research points to six causes of mistrust in insurance.
- Lack of clarity on policies
Too often buyers are unclear what they are buying. The Financial Conduct Authority issued a rebuke to the industry in its report Smart Consumer Communications citing the “fog” of industry jargon, and the “maze” of bureaucratic processes that confuses consumers. The FCA stated: “Consumers need: better practice and a more ﬂexible approach around communications; simple, clear information and explanations; and to be able to trust ﬁrms. Moreover consumers, who choose to use digital channels, need communications that are suitable for today’s digitalised context.”
A survey by EY reveals only 65% of fintech adopters and 52% of non-adopters read the terms and conditions when signing up for a new financial product. And the majority of consumers remain uncomfortable using a fintech service without a branch – the security of knowing a face-to-face conversation is possible remains highly valued: a huge cost burden for providers.
- Obscure pricing
The spread of quotes offered by price comparison sites remains extraordinary. Premiums can be x2 to x3 for essentially the same product. “Consumers are sceptical because they don’t understand how insurers arrive at a price,” says Manan Sagar, chief technology officer EMEIA of Fujitsu UK. “I was recently quoted £300 more for my car insurance renewal. Why? If the insurer could say it’s because I did 40 mph in a 30 zone, and ambeing penalised, then I would understand. In that case, there would be clear facts based on my driving performance data to explain the price rise. But in my case there was no explanation, and that is all too typical.”
- Privacy violations
Data breaches destroy trust in financial services brands. Alas, often the insurer perpetrates the violation via a misguided assumption of what consumers will tolerate. Even the best can err. Admiral Insurance built a policy around using Facebook posts to analyse the user’s personality. It claimed Likes, the tendency to use well constructed sentences, and precision on times when meeting friends, could o˛ er insights. The Facebook policy was pulled two hours pre-launch amidst privacy concerns.
- Impersonal products
Consumers want to feel their provider understands their needs. Unfortunately too many insurance products lack relevance. The coverage may be too broad: such as travel insurers which o˛ er either one month or annual policies, and nothing in between. It may be too inflexible, such as home insurance which is hard to upgrade when a new item is purchased. It may be hard for consumers to express personal circumstances, such as an unusual profession or the need to take policy breaks. The industry talks about personalisation, but this remains in its infancy amongst incumbent providers.
- Crude UX and CX
We live in an era when user interfaces are intuitive and smooth. Elite technology companies experiment through multivariate testing to shape Graphical User Interfaces that are beautiful to look at, informative, and require no instruction manual. The very best, such as Netflix, Facebook, and Spotify, are so refined as to be addictive for users.
Insurance, by contrast, is lagging in the CX stakes. From the first interaction, there is much to be desired. On-boarding can take weeks as paper forms are processed. KYC can be intrusive and clumsy. Policy information is often buried in obscure sub-menus, or not accessible online.
- Quibbles over payouts
Perhaps the biggest cause of reduced trust in insurance is the belief that insurers won’t honour the policy. The concern is more than money. After all, 99.9% of life insurance claims are paid out, 91.6% of critical illness, and 88.1% of income protection, according to the ABI. It’s also the process, and time taken. The ABI states the average life insurance claim is paid out within a month, down from four months a decade ago.
(to be continued)
This article is part of a series of FintechOS articles on the insurance industry. FintechOS has talked to leading companies from incumbents and start-ups, to accelerators and consultants, to get to the heart of the question that is keeping the industry busy: why is there a crisis of trust in insurance? For more findings on insurance, ➡️download our whitepaper: https://bit.ly/34slCM9.
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