– Tony Farnfield, Partner at BearingPoint
“Loyalty that is bought with money, may be overcome by money”. Seneca’s famous proverb might be a few thousand years old but couldn’t be more current and relevant. When looking at consumer behaviour over recent years across industries and product categories, there is a common trend – brand loyalty is less relevant; consumers are becoming ruthlessly focussed on price rather than brand. Convenience when switching, which used to be a hurdle, is not considered an issue anymore with the advent – and now dominance – of marketplaces and price comparison platforms.
The insurance industry is a good testament to this. Insurance customers used to pay the price for remaining loyal to one provider, with new customers getting the best deals – commonly referred to by the term “loyalty penalty”. Switching providers, however, was often arduous and involved a fair amount of research and deal comparison that not many customers were willing to undergo. The introduction of price comparison sites offered customers a quick and easy way to compare deals and switch, and has now become the mainstream option when buying or renewing policies.
The FCA and the “loyalty penalty”….
The so-called loyalty penalty has recently been under scrutiny by the FCA. The regulator found “hidden discrepancies” in the amounts customers were paying for a service, and warned general insurers that it “will not hesitate to intervene” if firms fail to meet their obligations to customers. Whilst we were still waiting for the official FCA investigation results on market practices and fairness, some insurance providers were good to react. For instance, Saga is now offering a three-year price promise on car and home insurance, while Aviva has introduced AvivaPlus which offers a renewal price guarantee.
How can insurers respond to fierce competition and change
In this environment of fierce competition and brutal pricing, insurers are forced to constantly innovate, reduce bottom line, adapt, and respond quickly to a changing economy and society.
Bottom line requires rationalisation and standardisation. For many years, identifying process improvements has traditionally been a well-proven but heavy, slow, and manual process. However, advances in technology and the advent of process mining tools address many of the legacy challenges of process improvement, benefit realisation, and sustainable improvements. It allows clients to link core systems & technology through API’s to visualise live end to end process to understand critical issues in performance, variation, and compliance.
Typically, there will be a common path that is frequently used, but not always the most efficient. Within a matter of weeks, it provides a deep process analysis and clarity on potential automation and process improvements. Additionally, process mining delivers an enduring connection to the core systems and dynamically visualises the impact of change. Be it new customer onboarding, procure to pay, change of details, or new product development, process mining offers process transparency in its raw form. It also enables rapid standardisation which is essential for driving cost efficiency and offering the necessary room and platform for adapting, changing, and scaling.
When process mining addresses the need for rationalisation, standardisation is addressed with new technologies that offer configurable rules engines automating existing processes and avoiding lengthy approaches to change. These solutions offer rule-based modelling, expressed as configurable and repeatable rules within the application. Not only does this cut back operational effort but avoids the likelihood of manual errors and process related incidents.
The answer from a tech view
One of the main drivers for adaptability and change is the ability to deliver scalable digital capabilities at a faster pace. Advanced analytics, IoT, and cognitive applications demand technology capabilities that are scalable and flexible. Cloud providers constantly evolve their capabilities and work with system integrators to create tailored industry solutions. Market participants can tap into powerful ecosystems that will provide them with the flexibility to make quick business decisions.
Making the most of cloud technologies requires robust medium and longer-term planning, especially when it comes to deciding which legacy systems to migrate to the cloud and when. Criticality and complexity should determine when to migrate to the cloud and the effort required to do so. For that reason, a phased cloud migration plan would act as the most effective way to manage change of this scale and to also allow the required room for the deployment of new applications.
In addition, by migrating legacy systems on Cloud not only gives flexibility but allows the organisation to maintain these at a fraction of the cost. With the introduction of new API platforms, migrating to the cloud is no longer onerous.
Elsewhere, blockchain has been used as a lever in the battle of reducing bottom line and responding to downward pricing pressures. Distributed Ledger Technology (DLT) and Blockchain has been the epicentre of insurers’ focus, mainly in understanding how this can be used to collaborate with competitors better and drive down costs. Proofs of concept have established the ability that DLT has, but only a few market players have gone past that stage. AIA in Hong Kong recently launched a blockchain-enabled bank assurance platform, and AXA in Europe is offering flight delay insurance cover through a blockchain platform. Whilst we won’t see immediate application of blockchain, the industry is set to undertake more meaningful and tangible blockchain initiatives that will completely change the scale and shape of insurance operations.
When product innovation is more than just a buzz word
Flexibility should not only transcend in the tech stack that insurers should be using, but to product and policy development that responds to customer needs such as customisation, personalisation, and greater control and self-management. An example of this real-time, as and when needed self-managed coverage is Trōv. Trōv is an on-demand insurance agency that uses an application which allows customers to insure single items they purchased (e.g. cameras, tablets or other digital devices) with a coverage that can be activated and terminated as and when needed and can be switched on and off through the app. InsurTech innovators are looking to disrupt not only how policies are currently offered to consumers but also tapping into new niche markets, some of them not pre-existing.
Product development can also be accelerated by backing InsurTechs that do not face the usual policy and legacy burdens. Personal insurance has been the main focus of these companies, however it is expected that life insurance and commercial will soon be the target.
Time will set apart leaders from followers….
All of the above are topics are often discussed within the insurance world, but the broader fundamental challenge lying ahead is how insurers will create the springboard and set themselves ready for adapting and keeping up with changing customer and wider societal shifts. The very blurring of the boundaries between industries owed to the sharing economy and the generation of vast real-time data, is set to create gigantic shifts presenting new market opportunities and threats.
Critically, insurers will need to get the basics right; embracing new technology as an enabler and designing services rather than products in a collaborative manner through the use of an ecosystem. These challenges are not set to become the industry norm soon, but it will all depend on who is the quickest to react first. Time is ticking away.
IS PRIVATE PLACEMENT LIFE INSURANCE THE PERFECT PRODUCT FOR GLOBAL HNW FAMILIES
By Louis Zuckerbraun, Managing Director, GMG Insurance
Everyone wants to know that their family will be okay after they die and will do whatever they can to ensure that. That’s as true for high net-worth individuals (HNWIs) as it is for anyone else. But in an age where families are spread across the globe, leaving the kind of legacy you want can be incredibly complicated.
One product that could make things a great deal more simple is Private Placement Life Insurance (PPLI).
Originally conceived in the US, PPLI is rapidly gaining traction across Europe. Not only is it more efficient than traditional forms of life insurance, allowing the investments within the policy to hold many more types of assets and asset classes, it can also be a useful way to overcome specific issues such as management and control, beneficial ownership and substance.
While PPLI is gaining popularity across the globe, it’s still a relatively unknown product set, even among the HNWIs it would most benefit. It’s therefore worth looking at exactly what PPLI is.
Effectively an investment wrapped inside an insurance policy, a PPLI policy’s cash value depends on the performance of the investments within it. These investments can include hedge funds, mutual funds, and other potentially lucrative assets. Ultimately, it’s down to the policyholder to choose what kinds of investment they’d most like to have, meaning that they have a lot more freedom than they would with an ordinary life insurance policy.
Depending on the jurisdiction, a PPLI policy can also provide significant tax savings. In the US, for instance, the Internal Revenue Code treats insurance differently than it does investments. So, by packing an otherwise taxable investment in a tax- free policy, investors can reap big rewards on the investment, as well as the death benefit, tax-free.
But PPLI policies aren’t just beneficial from a tax perspective, they’re also useful for anyone with a global family.
A PPLI policy is generally by nature a globally focused vehicle. So, for instance, approved banking partners and advisors in Switzerland can work with US persons, to provide an investment vehicle that has a global focus.
The policy would purchase global funds and be managed by a global advisor who is outside the US but understands the US market. This makes it perfect for anyone who wants to diversify from traditional United States Dollar denominated investments but wants to maintain tax compliance and work with international advisors.
This solution works very well with a global family who may have, as an example, a child studying in London, or with international businesses, and who wish to build exposure globally in a tax efficient and US compliant manner. An international PPLI policy would be very beneficial to the family.
Further, the policy can be denominated in Swiss Francs, US Dollars or Euros depending on the needs and strategies of the policy owners or beneficiaries and still pay tax efficiently to the US persons.
These features also mean that a PPLI policy can be a useful replacement for, or supplement to, a family trust, especially if a tax authority is unlikely to accept the trustees as the legal owner of the assets held in the trust.
A clear choice
With more and more families living in different geographies, a PPLI policy is therefore an option that should be playing a much bigger role in the mainstream. It provides an accepted and compliant solution to the planning challenges faced by ultra-high net worth and high net worth families.
While life insurance, in general, provides a mechanism for estate tax planning, asset protection and investment flexibility that cannot be beaten by any other compliant tool, PPLI provides the flexibility and protection that informed high net worth families increasingly require.
If you’re looking a purchasing a PPLI policy, however, it must be managed by professional insurance and legal advisors who understand the product.
FIVE THINGS YOU’RE DOING THAT ARE INVALIDATING YOUR CAR INSURANCE
Car insurance is a legal requirement for motorists, but many drivers may be unknowingly voiding their policy.
Failing to update your circumstances or providing false information, whether intentionally or not, could lead to your insurer refusing to pay out or cancelling your policy. In the worst-case scenario, you may be liable to be prosecuted for fraud.
To help motorists avoid any issues with insurance, experts at online car parts provider CarParts4Less have outlined five common mistakes that can invalidate your policy.
- Car modifications
Nearly half (47%) of Brits have modified their car in some way, with over a third (37%) spending £500 or more souping up their motors*, but failing to notify your insurer about any changes to your vehicle could void your policy.
There are two ways that car modifications can affect your insurance premium: if they increase the likelihood of an accident (performance upgrades), or if they increase the likelihood of theft (cosmetic upgrades or tech add-ons, such as a soundsystem).
Always ensure that you inform your provider about any changes to the vehicle, as this will allow your insurer to assess the validity of your policy.
Insurance for young drivers often costs more than groups deemed less of a risk. One way some motorists try and get around the higher premiums is by having a low-risk driver, such as a parent or partner, named as the main policyholder and adding the real motorist as a named driver.
However, if you get caught ‘fronting’, as this tactic is known, your policy will immediately be cancelled, and any claims denied. These cases are often taken to court and are classed as insurance fraud, with outcomes including fines of up to £5,000 and six points on your license.
- Not updating your address
Car insurance premiums can vary depending on the postcode, as some areas have higher rates of thefts and break-ins. It can be tempting to put down your home address as somewhere different to where your car stays every night; for example, your parents’ house while you are at university. However, if you do so, your insurer can refuse to pay out for any claims made at your actual main living location.
Many companies have investigative departments (called a special investigations unit, or SUI) dedicated to making sure information on your insurance and claims is correct, so while you may think you can get away with not updating your address, you’ll likely be caught when you make a claim.
- Not reporting accidents
Many motorists don’t see the point of notifying their insurers about small bumps and scrapes. However, even if you don’t intend to claim, it is important to inform your insurance provider about any damage, as not doing so is a breach of your policy.
This protects you in the event that the other driver changes their mind and decides to claim. It also ensures damage is accounted for if you do need to claim for future incidents, as damage which is inconsistent with a claim may mean that you are denied.
There are three types of car usage that insurance covers: social only, social and commuting, and business
These different policies provide different extents of coverage, and using your car outside of this usage will mean that you’re unable to claim. For example, social usage does not cover your car when commuting, so you will be unable to claim for any incidents while travelling to or from work.
A CarParts4Less spokesperson said: “While it may be tempting to bend the rules to pay for a cheaper policy, it’s never worth it, and will often lead to you paying substantially more in the long run.
“It’s important to always read the terms and conditions of your car insurance policy, to ensure that you have not accidentally invalidated the policy. Keep your insurance provider up to date with any change of circumstances, regardless of whether or not you think it’s relevant. It’s better to be safe than sorry.”
To find out how to legally reduce your car insurance costs, visit https://www.carparts4less.co.uk/blog/10-tips-to-reduce-your-car-insurance-premium
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