The problem with pricing
Paul Thompson, CEO Cavere Group, writes a regular column in Mortgage Introducer Magazine.
The FCA market study into insurance pricing strategies and how they impact customers has shone a spotlight on one of the biggest reputational risks facing our industry since the PPI scandal. I recently read a quote in the Independent that went “you should never be a loyal customer to an insurance company. Never.”
Dual pricing, online discounts, new customer deals, to the public this simply translates to the view that in insurance loyalty is not something valued, but rather punished. Existing customers appear ripe for financial exploitation, whilst new customers are worthy of the best deals. I ask myself why did anyone think this approach was a good idea?
Selling to existing customers is one of the most effective, and easiest, ways to increase revenue and profitability. Many studies demonstrate it’s more cost-effective to generate revenue from existing customers than it is to go out and find new ones. However, for many years the insurance industry has taken the opposite approach, a relentless drive for new customers driven by price, has resulted in massive fluctuation in premiums and a lack of focus on quality. The result is high customer churn. Churn to the extent we have now, where a customer can get a price that’s below the true cost of the risk in the hope they will simply stay with the insurer through inertia when the price doubles at renewal is bad for everyone.
The market study could lead to some much needed reform. We need a return to realistic pricing for risk, whereby customers get the right cover at the right/true price from the outset, so when the premium doesn’t go up or even reduces at renewal they feel valued and have greater peace of mind. It’s Cavere’s experience that customers are happy to pay a little more for peace of mind, knowing an advisor has taken the time to help them get the right cover for their needs. Our retention rate of 92% stands as testament to the success of this approach.
As intermediaries you have long understood the value of looking after your loyal band of clients, let’s hope that in time loyalty will be rewarded by all insurers. In the meantime make sure you’re working with a GI provider with strong insurer relationships, sound retention strategies and the expertise to deliver quality cover at not just a right first time price, but a right long term price.