For some months now, this column has been drawing together several lines of thought on keeping protection relevant to the consumers and communities who might buy it – but mostly do not.
Sales might be up right now but the long-term trend looks dismally downwards. This is only reversible if we sell policies that cause more claims while leaving fewer claimants dissatisfied.
That needs income protection to become our most important product and for its claimants to love it. And that needs far more than a new approach to claims. It also needs an entirely new approach to underwriting that starts with the terms and conditions of the policy itself, and includes the way it is applied for, managed and even the way it is priced.
In many industries, those who innovate radically can gain much from first-mover advantage (which is just as well, as the vast majority of radical innovations lose their backers lots of money).
But it seems it is different in protection: new ways of doing things can easily be copied, meaning those who follow can do just as well as the pioneer without taking any of the risks. Even better, in fact. After all, they have avoided all the costs of innovation and thus can charge lower premiums.
With the UK protection market’s wide and disparate distribution, where many thousands of much smaller businesses distribute the products of a few giant ones, that tends to mean they win. How does one get round this apparently insurmountable barrier to change? Several things are conspiring to weaken it but while we wait for that it might help to have a radical example of what success could look like.
One such example reached me in a blog from the US insurer Lemonade.com. Its key phrase reads thus: “Between 5:49:07 and 5:49:10, A.I. Jim, Lemonade’s claims bot, reviewed Brandon’s claim, cross-referenced it against his policy, ran 18 anti-fraud algorithms on it [and] approved it…”
To put it another way, technology allowed a pace and method of claims settlement hitherto unimagined. Now, Brandon’s claim was for a lost $729 coat, not for £100,000 after he was diagnosed with a critical illness, so it does take a visionary to make the connection.
But not that much of a visionary; just one prepared to look past the problems of the present methods and try to imagine new ones that would avoid the one killer risk all underwriting aims to avoid. That is “selection against”, or the expectation that those most likely to claim will concentrate their business with the provider seen as most likely to have to pay such a claim. After all, I lose coats far too often and would love Lemonade.com to insure mine.
It is a daunting challenge, but not so daunting as the consequences of our market becoming ever less relevant to its consumers.
Tom Baigrie is chief executive of LifeSearch