The insurance industry needs to increase transparency and rebuild trust
A speech by Richard Harding at the Insurance Council of New Zealand Conference on 5/11/19
Good afternoon everyone, I hope you’ve been enjoying this morning’s talks
It is clear from what we’ve heard that we need to do more to deliver good customer outcomes
Confidence in our industry is at an all-time low
You only need to open the paper and you can read about a stream of debatable business practices
And these claims are backed up by ICNZ’s own industry research which shows trust is declining
It is disappointing to read and tough to hear…
….consumers don’t trust us and think we’re not there to help them when they need it
It’s disappointing because I am sure none of us come into work to make things difficult
But it is clear that there is an issue and that we need to change
It would be easy for us to brush off these concerns by saying insurance is a grudge purchase….
…..or people just don’t want to understand
But at its heart, insurance is a vital community product and people do care
Insurance is fundamental to how communities work
It is a core part of the economic stability that allows them to thrive and to respond to disaster
It enables businesses to invest and grow by taking calculated risk
And it gives families the security they need to borrow money, to buy houses and cars, and to create homes and lifestyles
All of these people are comforted by the fact that their insurer will be there to help set things right when things go wrong
So when you think about that as our collective industry purpose, those excuses of being “too hard”, or a grudge purchase don’t stack up
Customers should care about every aspect of their insurance, but we’ve conditioned them to think it’s all too hard
As an industry, we’ve put confusing discounts in place
We penalise people for making a claim by losing their no claims bonus
And we incorporate complex jargon into our policies that even lawyers struggle to understand
And it is up to us to change this
There is currently an asymmetry in transparency, information and knowledge
We expect customers to tell us everything and in return, we tell them the bare minimum.
We design our processes to capture the 1% of insurance fraud, not to care for the 99% of legitimate customers
Decisions and changes are made that impact customers, but these are not communicated transparently
I know that Tower has been part of that problem, but we are committed to a better future
At Tower, we believe that people deserve better and are on a mission to break these industry norms and empower customers
It’s why we were the first insurer to release write-mark approved, plain language policies that have won awards
But this is not where we’re stopping – we’re constantly reviewing and improving
I’ve challenged our team to deliver super simplicity and create a two page policy with NO ifs or buts
This simplicity and transparency of product coverage makes insurance clear so that customers understand what they’re covered for, and there’s no confusion at claim time
It’s also why we went out publicly and committed to removing the duty of disclosure from our business.
This is not just removing the question from our processes, it’s removing all of the implications of this question for customers
We’re being transparent about what we need to know, and when we need to know it, so that at claims time, customers who have been truthful, lawful and honest will simply have their claim paid
Not declined, withdrawn or some other technical rationalisation
As an industry we proudly go out and talk about the fact that we pay the vast majority of claims, and only a minute number are declined
And that may be technically true, but is that what customers think?
Is that what they actually experience?
At Tower, and I’d be surprised if it were different across the industry, 1 in 5 customers end up with what we call a withdrawn claim
So 20% of customers think there is some trick, some technical clause, or a reason they don’t really understand about why we can avoid paying their claim
It is no wonder that confidence is at an all-time low.
But creating those simple, plain-language product wordings and removing catch-all questions is our way to break this industry norm
It’s also why we’ve just completed a $47m investment into a new insurance technology platform
Digital is the way of the future, and our new platform is completely unique in the New Zealand market, removing complexity internally, and for customers
It transparently offers up all the information customers need to make an informed decision, without any hard-sell tactics
And we’re now moving our customers from over 400 legacy products to a core set of just 12 plain language policies without the duty of disclosure
And we’ll be continuously reviewing and improving our products so that every year when a customer renews they’ll be on the latest policy we offer, with any changes clearly and transparently communicated
We’re removing sales incentives, improving and automating our claims processes, and as we convert our customers to our new platform, we remove all admin and finance fees
All done and communicated transparently, to deliver better outcomes for customers.
Transparency is key and is why we led the way on risk-based pricing
We believe risk-based pricing is fairer and we realised that it was going to be tough for a handful of customers, so we did the right thing – we were transparent
Before we made the change we spoke with the government, with media and our customers
We communicated openly and spent time and effort explaining our rationale and supporting customers through the change
And interestingly, recent research we conducted shows that 70% of people think risk-based pricing is fair
It is a fairer model because it stops cross-subsidisation, it means that the small number of people who are most exposed pay the true cost of the risk they face, and it helps people understand and learn about risk
It all comes back to our purpose and enabling communities to prosper by taking calculated risk
We ignited a much needed national conversation around risk management
Risk-based pricing is not new. It is how insurance operates all around the world and what happens every time a customer in New Zealand buys car insurance
So why then, when this is a fairer way forward and a mature conversation and customer education was needed, did the industry shut its doors and duck for cover?
Instead, embargoes remain in place and customers are confused and unnecessarily concerned about the availability of insurance
Is it any wonder that Kiwis don’t trust their insurers and we’ve all been asked to look at the culture and conduct of our businesses?
There is a need for a mature and open conversation
The conversation is not about pricing, it is about risk and how we manage and prepare for it as a country
New Zealand is a small economy. It is one of the riskiest seismic countries in the world and storms are increasing across the Pacific with rising water temperatures in the Tasman Sea increasing their impact here
There is a need for a mature open and honest conversation about these issues with all stakeholders insurers, government and community talking openly and honestly about this?
The government are currently looking at stop-gap measures that do nothing to educate, mitigate and improve preparedness
If we continue down this path, it will leave issues that future generations will need to deal with and unwind
Later today the conference will have presentations on sustainability and resilience (ReZealience) -- I challenge the industry and my fellow CEO’s to step up and have this mature conversation, share information and your knowledge on risk transparently
We have the data, information and experience to help educate and inform the community and government on risk
Mature conversations and sharing our knowledge is part of our core purpose and our role as an insurance industry.
It will help us rebuild trust in our industry and create a sustainable future for insurance
In the wake of the FMA and RBNZ report on life insurer conduct and culture it is clear there is a lot to do
There are other areas where we need to have a mature, transparent conversations
If you apply the conduct and culture lens not just to the private sector, but across the agencies responsible for responding to the Canterbury Earthquakes, you will see failings that remain unresolved today
The old EQC model and how these claims were handled have done nothing to improve the perception of insurance in New Zealand.
While we have made significant progress since then, it has been a long road for customers, insurers and the community and we have long maintained that the current system is fundamentally broken
In the true spirit of conduct and culture, and delivering good customer outcomes, I challenge the government and the EQC to join the industry in and open, honest and transparent conversation on the right model for the EQC.
This requires us all to step back from a position of defending the past and to look at outcomes from a customer perspective
We need to work together to ensure a sustainable customer focused solution is in place, so mistakes of the past are not repeated and the community is prepared
We know we’ve been part of the problem before
We have made some progress, but there remains a lot yet to do,
We are fully committed to improving and being part of an industry that is trusted to deliver good outcomes for customers
I’d like to acknowledge AA, we hold them up as the team to beat
They have a good reputation for looking out for customers, but we want to do more and we’re going to take it further
At Tower we’ve looked at every aspect of our business and our strategy through the conduct review, which has reinforced those good things I have mentioned today, but also highlighted issues that we need to look into more and fix
Everything we do at Tower is centred on how we make things better because we believe that’s what people deserve, and that builds trust
We are working hard to raise the bar for customers, to make them realise the status quo is not good enough, and that they deserve better
So now I challenge you
I ask everyone in this room to go back to your workplace and question your decisions and processes, look at how you communicate, and push hard for greater transparency
The culture and conduct review that all insurers have completed will be a pivotal moment for our industry
And we need to handle this openly, transparently and maturely
We need to communicate and work with employees, government and stakeholders, and most importantly, customers
Because true customer focus engenders trust and this is the only way forward
Thank you, and I hope the rest of the industry joins us on this journey.
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