Opportunity or storm clouds brewing?
A perfect storm of customer focussed legislation, consumer empowerment and the banking royal commission are leading to monumental changes for the general insurance industry and how it interacts with its customers. What’s been happening (and is due to happen) in the domestic energy space should be of note to the industry as general and health insurance will likely have to follow a similar path.
The Customer Data Rights (CDR) legislation will make it much easier for a customer to easily choose and switch between banking, energy and telco providers (insurance is currently off the list but for how long?). Currently in the energy space an energy provider pretty much has free reign over how it presents its bills, discounts and tariffs – this has made it very confusing for the time pressed consumer to scan the market and then switch. The NSW government has taken a bold step and is now offering a free energy search and switch service, which involves uploading your latest bill. No calls, no commissions, and very easy to use. How long until this type of service is made available for home, health, motor, and other household insurance items.
The Australian Energy Regulator (AER) has also stepped in to help make a customer’s data much more easily available in the short term. A third party with Explicit Informed Consent can now request 2 years’ worth of bills from the current provider to help find a better deal, using the data on the bill to assess against the thousands of options available in the market. The CDR legislation will help make this data readily available through secure access. How long until ASIC (who the AER work closely with), follow suit for insurance?
The consumer is demanding these types of digital ‘search and switch’ services and governments are listening, but so are the new generation of banks. These new banks will offer similar services but in a much more discrete and user friendly manner, as they try to understand the consumer’s spending and help them save on key household expenditures. The days of the ‘loyalty tax’, which is much more prevalent in insurance than energy will be numbered when the consumer can have their latest car insurance renewal automatically compared in the market and a switch is as simple as pressing yes to a prompt.
Lastly, the royal commission has put the insurance sector on notice around ethical behaviour and fairness towards their customers. The need to demonstrate fairness to their customers will also help put to bed the old business model of ‘bleeding’ a customer over a number of years with annual premium increases. There will need to be a much fairer system of re-assessing a customer’s needs, and pricing a competitive policy to suit.
What this all means, in our opinion, is that the traditional business model of keeping an ill informed loyal customer over a number of years to help feed the bottom line are over. Also we predict that this shift will also sound the death knell for the traditional aggregators, as their business model is largely call centre based and requires huge marketing budgets – this is not sustainable against the smart data orientated services that the new banks, and others who will enter the market as the barriers to entry are lowered, will be offering. Unnecessarily large commissions will be slashed, if not eradicated which is a win for the consumer and ultimately for the insurance providers.