10 August 2018
In well-developed insurance markets, consumers are presented with a vast array of insurance products. Many transactions are completed without advice, often through online purchase. The variety of insurance products available can be overwhelming, and consumers need to search for one that meets their needs and personal circumstances. The Consumer Risk Metrics Working Party was established to study and provide recommendations to the Institute and Faculty of Actuaries (IFoA) on the measurement of insurance consumer risk. The objective of the Working Party is to promote thought on matters relating to the communication of risks faced by insurance consumers (policyholders). Consumers ought to be able to easily compare risk across different insurance products and between providers so they can choose a product that is suitable for their needs. Having a Consumer Risk Metric (CRM) could help to facilitate this process, enabling consumers to compare the riskiness of products.
During July 2018, the Consumer Risk Metrics Working Party published the results of their research; this is available on the IFoA’s website. For those involved in the Heath and Care sector, there are parallels which can be drawn from the research. Reviewing progress against the Working Party objectives:
- Objective 1: the identification and understanding of consumer risks / concerns. The Working Party assessed the risks and concerns faced by consumers and the role performed by insurance to mitigate these. The YouGov survey indicated consumers look for unbiased information from insurers and easy to understand coverage. The insurance industry is built upon reputation and trust, a policyholders’ risk assessment of their needs and selection of insurance protection should result in good customer outcomes. The survey indicated consumer preference to refer to independent bodies and other users when sourcing and reviewing insurance information. Consumer’s lack of expectation of guidance from insurers and intermediaries surprised the Working Party. What could the insurance industry do to improve this?
- Objective 2: to highlight practical considerations of consumer risk metrics that allow the consumer to make an informed choice. The quantitative review of risk metrics identified that there was not a dominant measure for the consumer to aid their choice of products. Comparison websites whose analytics provide customers with a range of products are a practical method to deliver consumer choice. Changes introduced in customer facing documents represent progress to provide easy to understand and comparative disclosure to consumers.
Metrics developed in the future must be sufficiently robust to address the key concerns faced by insurance consumers and to be personalised so they are meaningful, this personalisation is a theme for future research. A consumer’s risk profile is complex, consumers may not think and behave exactly as insurers try to predict within their models. Insurance models should be adjusted to take into consideration the behavioural variance. ‘Behavioural research shows us that consumers are not the economically rational “super consumers” research models might assume.’ (FCA (2017) FCA Mission: Our Future Approach to Consumers).