To rectify the negativity surrounding the business interruption test case and the resulting impact on trust in the sector, ‘there is clearly work to be done at an industry level’ says Sicsic Advisory MD

More than a fifth (22%) of UK adults now trust insurance companies less because of the Covid-19 pandemic, while 36% believe the insurance industry did not do enough to help consumers in its coronavirus response, according to research by the FCA.

These figures form part of the regulator’s Financial Lives 2020 survey, which is designed to provide information about consumers’ attitudes towards managing their money, the financial products they have and their experiences of engaging with financial services firms.

While the first half of the report is based on survey responses collected prior to February 2020, before the onset of the Covid-19 pandemic, the second section of the research deals directly with the impact of coronavirus on UK consumers. This feedback is based on a separate survey, which polled 22,000 consumers last October.

The survey overwhelmingly indicated a decline in consumer trust for the insurance industry, with 22% saying they trusted insurance firms less because of Covid-19. Only 11% said they trusted insurance businesses more following coronavirus.

Plus, 36% of UK consumers also thought that the insurance and protection industry did not do enough to help consumers in its response to the pandemic.

One facet of this is communications – 25% of consumers experienced at least one service-related problem with any financial services provider. This included issues getting through to providers (11%) or having trouble using the firm’s website (9%).

Perception problems

In addition, there has been a steep incline in the number of UK adults who believe insurance companies rarely pay out, from 22% in February 2020 to 34% in October 2020.

Despite this public image, the FCA also noted that only 4% of its October respondents said they have not been able to get a refund from an insurance company, or that a claim has been handled badly between March and October 2020.

Of these respondents, 21% stated that they trust insurance companies a little less now, while a further 14% said they trust them a lot less.

The figures for the insurance sector differ to the FCA’s findings regarding the banking industry, however. Overall, 17% of respondents trust banks more following the pandemic, while 15% trust them less.

Rock bottom trust

Michael Sicsic, managing director of consultancy Sicsic Advisory, blamed the FCA’s business interruption (BI) test case for the majority of consumers’ mistrust following the arrival of Covid-19.

“It is clear that the negative publicity around BI payments, as well as some experiences with wedding and travel cover, has spilled into how the public perceive and trust the insurance industry overall,” he said.

“Insurance is now the least trusted financial services provider with only 7% [of consumers] expressing high trust.”

Sicsic added that there is “clearly work to be done at an industry level” and that “trust and value should be high on the agenda” for insurance firms, especially following the FCA’s report on price walking and the resulting proposed remedy measures.

He continued: “The frustration for many will be that those same respondents largely report positive experiences and higher trust in their own provider. There is clearly work to be done at an industry level.

“For individual providers, clearly communicating policy benefits, positive claims experiences and statistics will help foster loyalty and engagement.

“When 6% have cancelled insurance policies to save money since February, it also makes business sense to continue to focus on the value of protection.

“Trust and value should be high on the agenda in any case as firms prepare for requirements on reporting value measures and assessing products for fair value – [these are] set to come into force later this year.”