Half a year on from the landmark regulation coming into force, Insurance DataLab takes a look at its impacts on the sector
It has been six months since Consumer Duty came into effect, but what impact have the new regulations had on the industry? And are consumers getting the better outcomes the FCA hoped the new rules would deliver?
Sadly, the latest research from Insurance DataLab points towards a slight decline in customer experience over the last year.
The market intelligence firm’s recent Customer Experience Report, published in December 2023, revealed that the average Insurance DataLab customer experience rating for the industry fell to 68% – down from 69% a year earlier.
This average rating is comprised of scores across four key pillars – claims, complaints, customer satisfaction and transparency.
Scores for each pillar are based on Insurance DataLab’s own analysis of FCA and Financial Ombudsman Service (FOS) complaints figures, as well as additional data from Consumer Intelligence, Fairer Finance, Insurance Times and Trustpilot.
For this report, Insurance DataLab also added data from the FCA’s value measures into the equation.
This means that, for the first time, the ratings include an analysis of the percentage of claims each insurance company pays out on.
The inclusion of this claims acceptance metric has, of course, affected scores and is one of the contributing factors that has led to an 11 percentage point drop in the average claims rating, which fell to 72% – down from 83% a year earlier.
The insurance companies in this analysis paid an average of 84% of claims over the course of 2022, although there was a wide range of results – some insurers paid out as little as 15% to 20% of claims in certain business lines.
Such low acceptance rates will be of concern to the industry, particularly with insurance already having a reputation for not treating customers fairly – even if that poor reputation is somewhat exaggerated in the mainstream media and wider public opinion.
Indeed, Consumer Intelligence’s claims satisfaction analysis revealed an average score of 8.1 out of 10 across home and motor insurance for the insurance brands covered by this report. This is down from 8.4 for last year’s cohort.
Consumer Intelligence head of marketing Catherine Carey said this decline in performance could be expected, given the current market conditions.
“It should come as no surprise that the average score for claims satisfaction has decreased, as claims inflation has been a common theme throughout 2023,” she said.
“This means we have seen more ‘thin’ and ‘stripped-out’ essentials products rolled out in the market, giving customers a lower price point at a time when money has been scarcer for many.
“The potential problem that this creates though is that customers will buy an ‘essentials’ product without full awareness of exactly how the product has been made cheaper. This means that customers may not be aware of exactly what isn’t covered anymore, potentially leading to more negative claims experiences.”
This view is backed up by Insurance DataLab’s analysis of ombudsman complaints figures, with the overwhelming majority of complaints relating to the claims process.
Indeed, almost four out of five complaints that were referred to the FOS over the last five years related to the claims experience.
Upheld rates have also remained stubbornly high for the insurance companies in Insurance DataLab’s analysis, with the FOS finding in favour of the customer in 28.4% of cases over the second quarter of 2023.
This is up from 27.2% for the companies covered by last year’s report.
The volume of complaints has also been rising, with this year’s cohort of insurance companies receiving an average of 3.96 complaints per 1,000 policies sold – up from 3.42 last year.
Some insurers are seeing considerably higher numbers than this average too, with the worst performer receiving in excess of 12 complaints per 1,000 policies – more than three times the average.
These two metrics contributed to an average Complaints Rating of 65% for 2023, down from 67% a year earlier.
And insurers should make sure that such metrics are on their radar, with the FCA citing complaints performance as one of the key measures it will use to assess compliance with the new Consumer Duty regulations.
Customer satisfaction, meanwhile, has remained steady compared to 2022 with an average rating of 63%. This is despite a slight increase in the average Trustpilot TrustScore, which climbed to 83.1%, from 81.9% last year.
Fairer Finance has also seen an increase in the scores it gives to insurance brands, with the average Fairer Finance trust rating rising to 56.4% for the companies in this report, up from 53.0%.
The average Fairer Finance happiness score, meanwhile, remained relatively steady, rising 0.6 percentage points to 58.7%.
The final pillar in Insurance DataLab’s research is a transparency score based on Fairer Finance’s analysis of insurer user journeys and policy wordings.
And it is here that companies have seen the biggest improvements. Indeed, it was the only pillar that experienced an increase in its average score over the course of the last year.
The average transparency rating for this year’s cohort of insurance companies stood at 71%, some five percentage points higher than the previous year – although it is worth noting that average transparency scores for the industry as a whole have dropped in recent months.
There is, however, still a large range of transparency scores across the 24 insurance companies in this analysis, with transparency ratings ranging from 49% for the lowest-rated insurer, to 78% for the most transparent.
Insurance DataLab cofounder Dan King said that this points to a need for improvement, particularly with the increased regulatory spotlight since Consumer Duty came into force.
“Poorly executed user journeys and confusing policy wordings are still of concern to consumers and the regulator,” he said.
“It is one of the major issues contributing to poor performance by insurers across a number of different metrics in this analysis.
“Indeed, until these issues are solved, the industry will continue to be dogged by high levels of complaints and a reputation for not delivering the fairest of outcomes for its customers.”
Carey agreed and said that those that don’t get it right could find themselves under fire from the regulator.
“The claims industry has a challenging 12 months ahead as these new products and higher customers expectations are put to the test,” she said.
“This is where the industry has the potential to become exposed to FCA scrutiny through the Consumer Duty lens.”
But that does not mean there are not some bright spots amidst the darkness, with NFU Mutual named as the best insurer for customer experience in UKGI.
This is the second year that the insurer has received this accolade, with the serial Gold Award winner receiving an overall Customer Experience Rating of 78% for 2023.
While this is a slight drop on last year’s 79% rating, it is still some 10 percentage points ahead of the market average and is a performance more than worthy of recognition at a time when regulation is placing customer outcomes firmly under the spotlight.
Insurance DataLab recognised six top performing companies with Customer Experience Gold Awards – NFU Mutual was joined by Covéa with a score of 77%, Natwest (75%), HSBC (75%), Santander (73%) and Direct Line Group (71%).
NFU Mutual continues to excel on Insurance DataLab’s customer satisfaction metric with a score of 80% and has had the highest score here for the last two years.
This was underpinned by market-leading net promoter scores (NPS). It earned a home insurance NPS of 31.0 and a motor insurance NPS of 30.7 – both well above the average scores of 4.8 and 6.2 across all brands analysed by Consumer Intelligence.
The insurer was also rated highly for customer satisfaction by Fairer Finance, receiving the highest customer happiness score of all the companies in this analysis with a score of 74%, while a 73% rating for customer trust was only marginally beaten by Covéa.
Customers have been rating NFU Mutual highly on Trustpilot too, with the insurer receiving an average TrustScore of 4.4 out of five as at the end of October 2023.
The only insurer to receive a higher average score in this analysis was LV=, which picked up a TrustScore of 4.5.
And the wider industry would do well to learn from these top performers, particularly with the regulatory spotlight having never been greater. Those that don’t could very well find themselves under greater scrutiny should the regulator come knocking on their door.