Price-led insurance market risks leaving customers unaware of ‘hidden away’ exclusions

The insurance industry’s drive to make buying cover “quicker and easier” has come at the expense of customer understanding, according to Matt Scott, cofounder and chief product officer at Insurance Datalab.

Speaking before the House of Lords Financial Services Regulation Committee during the first public evidence session of its inquiry into the regulation of the UK’s consumer insurance market, Scott warned that some customers only discover exclusions in their cover when they come to make a claim.

Scott told peers that the work done by the industry to make the quote process “quicker and easier” has come at the expense of consumer understanding due to the “technical contract” and policy wording.

He continued that there could be an argument for “slowing that process down to help with understanding”.

He said: “If [exclusions are] all hidden away in terms and conditions people aren’t going to see it. But, for example, on a buildings insurance policy where claims acceptance rates are really low, a lot of that is because people don’t understand that things like storm damage are often excluded.

“They may be expected to be covered by the policy if there’s a storm and their fence gets blown down, for example, and explaining up front that things like this are excluded from the policy and not covered, that could help them understand.”

Matthew Brewis, partner in the financial services consulting practice at KPMG, added that improving customer understanding of insurance was a shared “duty” for the industry.

He said that customers often make different choices depending on their priorities, with some willing to pay more for better service during the claims process, while others focus on finding the cheapest available cover.

“I [would] want to phone up once I want to make it somebody else’s problem and have that increased level of service, [which] may mean that the policy costs more than one where you have some consumers who are very price sensitive and need to buy the very cheapest product,” he continued.

“But when they come to claim they may have got a basic product and will not receive [the level of cover they expected] and some people need to make that decision out of necessity, [while] others are making it from a lack of understanding.”

‘Race to the bottom’

Meanwhile, Scott also said he believes that price comparison websites have created “too much of a focus on price”, as it drives a “race to the bottom” in terms of the premium being paid.

He said that claims acceptance rates to look at how many are accepted by insurers across different business lines should be made publicly available by the aggregators.

He added: “There’s nothing that shows how the policy performs when it comes to being used around how claims are accepted, how good the insurer is at that part of the promise and that’s maybe somewhere where it has made it a bit of a price-driven purchase whereas really you need to look more at the value of what is covered.

“In recent years, general insurance pricing practises have fuelled that a bit more. People are more focused on the price especially if premiums haven’t gone up in the past so that’s maybe a bit of an issue there, too much of a focus on price and less on the outcomes that are being delivered.”