Building simpler insurance products to better protect customers
As businesses around the world evolve to withstand the continued impacts of the COVID-19 pandemic, including radically changing their business models, and grappling with the challenges that lockdown restrictions around the world have brought, the global insurance industry must urgently reassess how it can best serve its customers.
Importantly, it must work to further simplify its products for all customer segments and promote greater understanding of the cover it is providing. The benefits are significant. If the industry does not take the opportunity to respond to customer needs and evolve, it will lose relevance over time.
Whilst the report, Building simpler insurance products to better protect customers is not a comprehensive set of answers that will ensure that customers will always understand and buy the right cover, there are three key recommendations that the global insurance industry should implement to respond to the challenges that COVID-19 has presented:
Reflecting the lessons learnt from personal lines and effectively and consistently applying the existing leading practice summarised in Chapter 3 of Building simpler insurance products to better protect customers would considerably improve outcomes for customers, brokers and insurers and strengthen trust in the insurance industry.
This is likely to be easier and have the most impact in the short term for more standardised SME insurance products, where many of the existing requirements are closer to personal lines products. Increasingly looking for ways to leverage best practice for products aimed at more sophisticated buyers could also deliver similar benefits, though they are more complex to implement.
To illustrate the potential benefit, we have looked at how existing good practice could be applied to improve clarity around silent cyber cover (see Appendix 1 in the report Building simpler insurance products to better protect customers).
While insurance innovation to improve customer outcomes is already happening, as an industry we need to accelerate the pace of change – not just in product design, but also in how we provide cover to better protect customers.
The industry will need to focus on product design and delivery innovations, to ensure a consistent approach that enables customers to more easily understand the cover available to purchase, and its scope.
This could build towards a framework in which all wordings (selected by customer) can be underpinned by common universal standards, tailored or differentiated through clear endorsements where necessary.
As outlined in Chapter 4 of our report Building simpler insurance products to better protect customers, there are a number of routes the industry can take to more radically transform and simply its products. The key recommendations include:
- Investing in developing data-led policies through digital contracts
- Enhancing customer ownership and understanding of their policies through modular contracts
- Building dynamic comparison tools to explore how policies respond in different scenarios
- Providing parametric insurance products with clearly defined trigger events
- Designing outcome-based insurance contracts that insure against tangible customer outcomes
Appendix 2 of our report Building simpler insurance products to better protect customers, outlines how business interruption cover could be provided through parametric or outcome based products, and highlights some key design considerations for the insurance industry.
COVID-19 has highlighted the need for the industry to involve customers more in the design of insurance products, in order to provide greater value and to respond more dynamically to changing risk profiles. The changing needs and expectations of customers will ultimately determine which approaches to designing simpler products are successful in future.
The more feedback brokers and insurers can get from their customers, the more quickly they can respond and the more successful they are likely to be. This can either be by making better use of the existing customer information they have in complaints, queries and claims, or by finding new ways to engage them.
Case study: The London Market Group are establishing a Client Advisory Panel to put customers at the heart of the market’s strategic decisions
Through its Client Lens programme, the London Market Group is engaging with customers to understand how their business models are changing, and how the London Market can best meet their needs.
The research programme started in September 2020 and detailed sector reports on critical risk developments, insurance implications and associated service needs will be published in 2021 to stimulate innovation and best practices in both the supply and demand sides of the London Market.
The programme will also establish a Client Advisory Community and a London Market Client Advisory Panel to bring a customer voice to the London Market’s strategic initiatives.
Involving customers directly in product design can help ensure policies are easy to understand and better meet customer needs. Some insurers are looking to include customer champions within their boards to make sure they are represented at the highest levels.
Case study: Lloyd’s Reputation Pulse Survey
We monitor our reputation and performance with all of our global stakeholders, to ensure we are getting customer feedback to help us better understand our key audiences. As part of the Future at Lloyd’s, we have implemented a new benchmark to measure our Net Promoter Score (NPS), so we can measure our success of the changes we are delivering and improvements in customer experience and perceptions.
Next steps for implementation of recommendations
Lloyd’s will continue to use its position as a convener to support progress across the global insurance industry. We have discussed these recommendations with a number of trade associations within the UK and with insurers and brokers in our Global and UK Advisory Committees. In parallel, we will continue to develop best practice and product design innovation within the Lloyd’s market, including how these proposals might be applied, as well as testing product design innovations through the Lloyd’s Lab. Nevertheless, the global insurance industry must work together to find consistent ways to simplify its products to support enhanced customer understanding of the cover they have in place, and ensure they have the most relevant protection for the risks they face. Lloyd’s will continue to support collaboration across the industry as it works to improve customer experience and product understanding.