Expert panel says there are clear business benefits in ‘taking this bull by the horns’

The onus is on the insurance industry to improve transparency around product design and policy documentation in order to reduce the expectation gap between what policyholders believe their insurance covers and what insurers actually provide.

This was the key topic of conversation at a webinar hosted by the Chartered Insurance Institute (CII) on 20 January, titled ‘Transparency and Insurance: What can be done to close the expectation gap?’.

Customers’ understanding of their insurance provision came to a head during the coronavirus pandemic, when many policyholders believed their business interruption (BI) policies would pay out – many insurers refuted this however, which led to the FCA’s recently concluded test case action.

Peter Blanc, group chief executive of Aston Lark, described a conversation with a client to demonstrate this point, saying that as far as this customer was concerned, his business had been interrupted, therefore a product called ‘business interruption insurance’ would surely need to pay out to cover any losses.

Blanc said that the customer journey here needs to be redesigned in order to be more transparent, and that this process could actually boost sales for brokers – if clients are unhappy with the exclusions within a certain insurance policy, then brokers can recommend additional products to plug any gaps and ensure the overall package suits clients’ needs.

Graham Trudgill, executive director of Biba, agreed. He said: “Fully comprehensive isn’t fully comprehensive. All risks isn’t really all risks. Business interruption isn’t all business interruption.

“We’ve seen some changes. Home insurers now tend to call all risks ‘personal possessions’, which I think is a step in the right direction. So, let’s revisit some of the language that we use.

“I think it’s difficult for small firms. Small brokers, for example, they get what they’re given from the insurers, so they cannot change policy wordings. So, where an individual can make a change is when they sell it, when they promote it, talk about the significant exclusions, what you are and aren’t covered for, things like that. That’s when they can make more of a difference to people there.

“We need to move [insurance] from being a grudge purchase, a bill, to something that people genuinely value. That’s a big mission that we have to do.”

The webinar followed the publication of the CII’s ‘Transparency Companion’ guide, which was released in December last year. The guide was compiled by the professional body’s Chartered Transparency Forum, of which the webinar panelists are all members.

What does the Transparency Companion recommend?

The five key actions identified in the guide are:

1. CII members should positively and proactively enhance clarity of wordings for the average consumer.

2. Where are any interpretation could be made, err on the side of the customer.

3. Welcome internal and external feedback about documentation and communications throughout the customer journey and use that feedback (including feedback from complaints) to make improvements.

4. Aim for all reading material to be understood by those with a reading age of 13 or less, as well as ensuring maximum legibility through varying use of font size and colour contrast.

5. Ensure you fully understand the underwriting intent of a policy before communicating with clients and vary your advice, guidance and offerings to suit the level of knowledge and experience of the customer you are interacting with.

Boosting business

There are also business benefits to maintaining transparent practices. Trudgill described transparency as the “foundation stone of trust”, so boosting transparency could not only reduce potential Financial Ombudsman Service (FOS) complaints, but it could also help to repair the wider industry reputational damage resulting from the BI test case and build greater trust in the sector generally.

Blanc added: “The onus is on us. There are huge business benefits for insurers and brokers to get this right. If you become known as an insurer and a broker that is transparent and has got great products and really explains things clearly and has minimal complaints, that could be a fantastic differentiator in the market. You can grow your business on the back of a transparent approach.

“It’s easy to say ‘we can’t solve this’ and just carry on selling what we’re selling because we’d probably get away with it. That’s a real shame if we take that approach. There can be real business benefits by taking this bull by the horns.

“Not all customers want to listen, but it’s still on us to make sure that we are doing our damndest in making sure we are solving their problems before those problems arise.”

Hiding behind policy documents

Policy documentation is a primary target area when it comes to improving transparency within the industry.

James Daley, managing director of Fairer Finance, said this should be viewed more as a manual that policyholders turn to when they have a question about their cover. With this in mind, the contents should act as a “jumping off page” that clearly directs insureds to find their answer, rather than listing confusing sections with ambiguous details, such as ‘Important Information’.

Daley added that instead of amending existing documents, it is actually easier for insurers to start from scratch when looking to improve readability – he said that typically, around a third of current policy documentation can be removed. This strips out repetition, formal language and unnecessary jargon – any jargon that is required, should be clearly explained.

Words and sentence structures should also be shortened to improve ease of understanding.

These types of revisions are vital to ensure that policyholders do not find anything unexpected “lurking” within the small print, said Daley, who admitted to being “shocked” by what he views as the “poor customer journey” currently occurring within the insurance industry.

He continued: “It is possible to create contracts that are legally watertight, that will put you in better stead at the Ombudsman and I think too many insurers hide behind the fact that they’ve had this policy document for the last 20 years and the roof hasn’t fallen in, so it’s probably ok.

“But actually, when we go through the process of rewriting these things from scratch, we find that actually a lot of the wording isn’t fit for purpose. It doesn’t even do what the underwriters intended it to do in its current form.

“Going through that process is time consuming, it’s expensive, it’s painful, but it’s a valuable pursuit for your business.”

Blanc added that it is also “a challenge” for brokers to stay on top of hundreds of different policy wordings, which is why any changes need to be implemented on a market-wide basis.

Trudgill agreed, suggesting that it would be useful for insurers to signpost to brokers any changes when they update their policy documentation rather than leaving brokers to sift through pages themselves.

Furthermore, he said it is also important that loss adjusters are provided with the same up-to-date policy wordings as brokers to make sure there are no differences of opinion when it comes to determining coverage.

The webinar was chaired by Melissa Collett, the CII’s professional standards director.

Tips to improve transparency:

  • Nominate an ethics committee or an ethics individual within the firm to look at complaints and focus group feedback.
  • Make use of short videos during the sale process to advise clients of commonly misunderstood pointers from their policy, as well as frequently asked question videos.
  • Don’t be afraid to bring exclusions to the fore when having conversations with clients – these should be viewed as an opportunity, not a threat.
  • Make sure that policy documentation is mobile-friendly so that customers can read documentation on their phones; don’t just provide a PDF.
  • Use language that customers will understand – imagine explaining the insurance product to a family member.