Articles - Regulation allows you to know and do more for the customer

As the insurance sector continues to tackle the rising cost of claims and fraud , it has also had to act on significant changes to the regulatory landscape - from the Financial Conduct Authority’s (FCA) new pricing rules, which came into effect in January 2022, to the Consumer Duty reforms, which became effective 31st July 2023.

 By Martyn Mathews, VP, personal and commercial lines, UK and Ireland for LexisNexis Risk Solutions, Insurance

 It is becoming clear to us at LexisNexis® Risk Solutions that these regulatory changes are driving a demand for enhanced levels of insights about customers and prospects, in order to meet and exceed the expectations of the FCA and of course, the consumers the industry serves.

 When the pricing reforms were introduced to stop price-walking, simplify the ability for customers to stop automatic renewals and ensure insurance products offer fair value, it became imperative for insurance providers to unlock the power of the customer data they already held. They needed to understand as much as they could about the insurance risks and needs of their existing customers, based on every previous touchpoint they may have had with their brand or business group in order to help ensure they were priced as precisely as possible.

 In essence, they needed the single customer view – a term common in marketing environs - but one that has perhaps not been so common in the world of insurance.

 The single customer view has become increasingly important to the sector and as a consequence, the demand has grown for insurance-specific data matching and linking solutions. Insurance providers who have taken the step to consolidate all the customer data they currently hold to create one ‘golden record’ for each customer, can now apply data enrichment based on an accurate starting point. This means they create a more rounded understanding of the individual and their car, their home or both, to price them accurately and help ensure the product is right for the risk.

 There is little doubt that knowing the customer is fundamental to the insurance provider’s ability to meet their regulatory obligations. Leading on from the pricing reforms, the Consumer Duty requires insurance providers to ensure that products and services meet the needs of the policyholder, and products and services provide fair value with a reasonable relationship between the price consumers pay and the benefits they receive . The CII’s own director of policy and public affairs stressed the importance of ‘assuring consumers that their risks are assessed individually rather than being based on generic assumptions’.

 If implemented effectively, this regulation has the potential to improve outcomes for consumers and reinforce trust in the industry. There is already a demand from consumers for more flexible, personalised cover , but couple this with a greater requirement for fair and accurate pricing and, again, insurance providers have needed to re-evaluate how they assess risk and price retail customers.

 For brokers specifically, understanding the affordability of insurance payment options and interest rates charged will be key and for many, this has meant using data enrichment to a far greater degree.

 As well as getting to know a customer, when used wisely data enrichment can help to keep pace with the changing nature of risk without the need for customer-provided information.

 Providing a fairly priced policy based solely on what a customer needs is challenging in a world of changing risks, from climate change to new technology, such as Advanced Driver Assistance Systems (ADAS) equipped cars.

 Data can help to fill information gaps. For example, claims data can provide a market wide view of claims for a person or asset, helping insurance providers to understand climate-related risk at a property. Equally, granular data can now be accessed on a car down to Vehicle Identification Number level, allowing risk to be assessed on the presence and performance of ADAS. Vehicle centric data now also offers a true picture of the history and value of every vehicle in the U.K. car parc, not a just generic picture of a make and model.

 It has been inspiring to see how insurance providers across the U.K. have been embracing the change new regulations have brought. Data can help achieve regulatory compliance, but also help gain an understanding the life-time value of the customer across all lines of business. By knowing more, insurance providers are better equipped to do more for their customers.

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