No single event in modern history has had the profound impact on consumerism that the Covid-19 pandemic has.
Not only has consumerism moved from physical stores to online platforms, but discretionary spending has also come under pressure. This has forced many consumers to take a long look at their budgets where tough calls are made on what were once necessity items.
Studies throughout history have proven that during times of economic recession, spending on items such as insurance takes a significant downturn. The impact of the current crisis is that consumers are more critical about what they are spending their money on, and they are more active when it comes to managing their risk profiles.
Wynand van Vuuren, head of client experience at King Price Insurance, says the pandemic has had a profound impact on the short-term insurance industry.
“We’re seeing two main effects of the pandemic. The first is that many consumers are struggling to recover from the double whammy of the recession and the financial impact of the pandemic. They are looking for ways to cut costs out of their budgets,” says Van Vuuren.
“Insurance premiums are often an easy target. However, that leaves the public exposed in the event of any accidents or incidents.”
Ironically, the second effect is a greater awareness than ever of the need for insurance, as people re-evaluate their finances and their lives post-Covid.
“There is a clear need from consumers to know exactly what their risks are, how they can reduce the likelihood of these risks having a material impact on their lives, and how they can reduce their impact if they do occur,” says Van Vuuren.
In the past, insurers presented a blanket offering of products that were designed to cater for the demand that was driven by the market at the time. The pandemic has seen the rise of the hyper-personalised consumer. Consumers feel that if they are spending money on an insurance-based product, it needs to cater for their specific risks.
“Usage-based insurance is probably the hottest trend in the global insurance industry right now,” says Van Vuuren.
“People don’t want to pay full premiums for assets that are standing idle or are being used infrequently. A growing number of companies are bringing usage-based products to market, basing premiums on the number of kilometres that clients drive per month, the value of their cars and their personal risk profiles. Usage-based insurance has now extended into areas like agriculture as well where farmers only pay when they use their expensive machinery.”
Van Vuuren adds that consumers are the real drivers of change. Technology is the enabler, but clients are the real disruptors.
While insurers have always developed their product with clients in mind, and clients have been at the heart of the insurance industry ever since the industry began, there has been a definite shift towards enhancing the customer experience as a way to retain customer loyalty.
How can insurers win loyalty?
“Customer experience (CX) is the single biggest factor determining loyalty; and the future of CX is personalised and friction-free,” says Van Vuuren.
“Clients want easy to understand product comparisons, and slick digital application and self-service capabilities. They want rapid, automated underwriting that makes onboarding easy, with their risks assessed quickly and painlessly, with minimal steps. They want to be able to claim via an app, if necessary, with their claims assessed by AI [artificial intelligence] based on their risk profiles. Most of all, they want to pay premiums that reflect their own risk profiles, and not that of a broader pool.”
Van Vuuren adds that consumerism has turned the industry on its head. Today’s most successful insurers have to build their businesses around their clients.
“Consumers don’t want one-size-fits-all products. They have sophisticated needs and wants, and are demanding aspects like a superior CX, a true omnichannel experience which recognises and anticipates their needs, and a clearly articulated sense of purpose and sustainability.”
Not only has the insurance industry been fundamentally changed by the pandemic, it has also faced a number of regulatory changes as the Financial Sector Conduct Authority (FSCA) shifts the power in the industry towards the consumer.
Not even the regulator has been immune from the impact of the pandemic.
“We are currently working on the Tranche 3 amendments to the PPRs [Policyholder Protection Rules] and regulations,” says Kedibone Dikokwe, divisional executive: conduct of business supervision at the FSCA.
“This is informed by trends picked up in the industry and certain issues [or] concerns identified from supervision of the industry, concerns highlighted by the ombuds, enhancement of certain requirements needed and ultimately to ensure the fair outcomes to the policyholders even more.
“Possible amendments to the structure of distribution channels and remuneration structures are also being considered based on the RDR [Retail Distribution Review] proposals and the previous industry feedback received. We are also considering expanding the application of the PPRs to cover more policyholders,” she says.
“The reporting from the industry in terms of market conduct indicators will also be enhanced to provide the authority with more data to meet our mandate of being proactive and intrusive.”
Dikokwe adds that the FSCA is attending various claims, complaints and customer forum meetings of some of the insurers, and has observed positive changes in the culture of the insurers. It has become common practice for insurers to translate the complaints received to the appropriate Treating Customers Fairly (TCF) principle.
From a governance perspective, many of the insurers have constituted TCF or customer affairs committees, and the sole focus of these committees is to discuss and assess the manner in which the insurer conducts its business and whether the conduct translates into promoting fair outcomes for customers.
“There has been a shift in the industry making the policyholder a focus point – and more reporting regarding market conduct indicators are being escalated to board level,” says Dikokwe. “There have been positive changes and we expect to see further positive progress being made by [the] industry.”
The impacts of the crisis will linger, and will influence the industry for years to come. Whether this is good news for insurers remains to be seen. One thing that is certain is that the power dynamic has definitely shifted towards the consumer.