How new GIPP rules will impact the UK insurance sector

New rules from the UK Financial Conduct Authority (FCA) are shaking up the insurance sector and shining a light on the importance of improving the customer experience.

The new regulations relating to General Insurance Pricing Practices (GIPP) are designed to bring more transparency to customers and mean that insurers must deliver long-term fair value to customers.

We spoke with Ian Betley, SVP of sales EMEA & APAC at EIS, to get more insights on what the new regulations mean for insurers and customers, and what opportunities the new rules can bring.

Are general insurers responding the same way to GIPP?

It’s early days yet. In most cases, we see that organisations have put sticking plaster or implemented tactical workarounds to meet the requirements.

However, we are seeing increased activity in the market, not just around GIPP and the immediate challenges it created, but also around how insurers address the intended and unintended consequences that have subsequently happened and may well do in the future as the regulator continues to add to the pressure. Depending on how prepared or how capable they were of being prepared, insurers are taking several approaches, including: a protect strategy, with an objective of meeting and evidencing the requirements and looking at how they can protect their back-book; a retain strategy, where they are focussing on leveraging data and technology to enable better insights into how they can reduce attrition rates and maintain new business levels; and a lead strategy, which is all about speed and customer centricity, changing the way they engage with customers, and the way customers engage with them in an attempt to build trust, stickiness and brand loyalty.

How are some general insurance providers getting ahead of others when it comes to GIPP?

I’m not sure the term “getting ahead” is correct. There are real challenges around the ability to respond with any degree of speed, and how you integrate across a very complex business with aging and disparate software packages.

However, what we have noticed for existing and established providers is that the language of needs has been changing, albeit their methods of procurement haven’t. Typically, they are looking at three areas where they have legacy issues that can help them build the foundations to not just meet the requirements, but to respond and prepare for what will be a wave of market changes and opportunities:

Customer centricity where you need data integrity
Building a digital DNA where you need integration
Innovation and speed to market, without a fear of failing

The challenge now is they are not ready to embark on point three, nor can they until they have fixed the first two problems. Many of these organisations have either been through a recent and often painful technology transformation or have been subject to M&A activity. Typically, the appetite for a further multi-year project is simply not there, because it can be deemed as just too hard. It’s not quite a trend, but it seems to be mirroring the life industry, which in several cases created legacy portfolios of long-standing customers while building an innovation arm to protect their new business function and defend against new entrants.

What do you think the regulator’s next move will be, and what can general insurance providers do to get ahead of the curve?

I think there are three areas that the regulator is likely to challenge, and the customer will be at the center:

Product suitability and consumer education: Are the products that are being offered fit for the end user, at an individual level? This is where customer insight needs to be optimum. Quality data needs to be turned into customer knowledge.
Targeting other lines of business: Duplicate the cost unless you have a single platform that manages multiple lines of business for you.
Payments and charges for change: The legacy default is annual premiums with monthly payments, and there’s normally a charge, often extortionate for the privilege of paying monthly, or an administration charge for canceling early.

The future will be pay as you go/usage and behaviourial based or bundled and embedded lifestyle insurance, and it will be interesting to see how the regulator measures value for money versus convenience.

This cost of regulatory change and evidencing it will have a budget impact on mandatory business change costs, and if insurers don’t have the technology in place and the mindset to adapt, it will surely be a tax on innovation. Therefore, those that are not constrained by technology will win.

What pressures do the new GIPP regulatory reforms introduce, and what can insurers do to gain an advantage?

Before they get an advantage, they have to fix the problem. They not only have to be compliant with what the regulator is asking them to do, they have to prove that they have to be compliant.

This creates an opportunity for new entrants who have no legacy and can respond quicker. In parallel existing carriers are setting up new brands to workaround the regulation putting in pressure on the aggregators to get them onto their comparison sites. However this is not fixing the problem; this is just a workaround. It will also be interesting to see if the role of the aggregator diminishes over time which in theory provides the carriers with an opportunity to build trust directly with the clients. Now, once you build loyalty and have a 1:1 engagement, you can potentially have more stickiness, and use the opportunity to upsell and cross sell. Is there an opportunity to do so? Well I believe loyalty and trust is where the real opportunity lies. Loyalty is where customers buy because they believe and trust in the brand experience and will pay more for that privilege. So a carrier in the spirit of transparency could ensure they are providing customers with more suitable optimal products and guide them to best products not just the cheapest thus decommoditising the market and convert customers to not always being price led.

A caring carrier that has brand trust has much more opportunity to beef up coverage, cross-sell and create customer stickiness, especially if they can create higher persistency rates at the end of year one.

In my family of five at home, we have 15 insurance policies, with 15 renewals, 15 direct debits, across 12 providers, most of which I have no brand experience with. So in my view, let’s just say there’s an opportunity to ‘fix insurance,’ and therefore the door is also wide open for the new entrants.

What do these changes mean for insurers and price comparison websites?

For insurers, they’ll need to differentiate beyond price: by customer experience or proper design, and have agile technology to adapt pricing very quickly. It’s not risk-driven, it’s customer-driven. The approach of the same mess for less is no longer acceptable, nor is poor customer experience. The customer has to be at the centre, you can no longer be product centric nor can one size fit all. I think there is potential to look at longer-term customer value.

The way your customers procure and consume your products will change so providers will need to change the way they procure and consume technology too – which is why the big threat to legacy providers is those that have adapted to companies such as Netflix and Amazon.

There will be a marked change in customer behaviour, the market, and the distribution channels as customer focused ecosystems get created and the suite of products available will be more tailored and customer specific.

To survive, carriers will have to become more technology-led and they need to do two things:

Have a platform to innovate and rapidly launch new products that are relevant and more aligned to customer lifestyle than simply mandatory needs.
Identify and build loyalty and trust with selected customer segments and maintain it.

And a third thing: they need to do it faster.

For more information, check out our whitepaper, “Tackling the loyalty penalty: How the collision of fair value regulation & tech limitations will propel the UK general insurance sector.”