The fight to attract new customers is an enduring one, especially in the home and motor insurance sector. Over the years brokers and insurers have got into the habit of dangling ‘juicy carrots’ in the form of low premiums and other perks in front of new customers in a bid to entice them away from their current cover providers.
These new deals resulted in thousands of loyal customers jumping ship and comparing prices on a regular basis to secure a bargain.
But the days of using these tactics appear to be numbered. UK watchdog the Financial Conduct Authority (FCA) is keen to stamp out this practice of offering just the new customers favourable rates.
Last month, the FCA said: “The FCA is proposing significant reform of these markets through measures which seek to enhance competition, ensure consumers will receive fair value, and increase trust in these markets.”
In the past, the deals to entice new customers would often be in stark contrast to those offered to existing customers. New customers would get a cheaper rate while loyal ones would often be subject to a ‘loyalty penalty’ as insurers engaged in practices of hiking prices annually for existing customers.
Under the new rules, firms would be free to set up new business prices, but they would be prevented from gradually increasing the renewal price to consumers over time (known as ‘price walking’) other than in line with changes in customers’ risk. So, in other words, the renewal price for existing customers would be no higher than the equivalent new business price.
The FCA estimates that six million people were overcharged a total of £1.2 billion in 2018. The FCA said that some of this was due to harmful pricing practices which is something that it intends to tackle as well. Reports indicate that policy holders could save around £3.7 billion over ten years once the ban on price walking is in place.
As the home and car market becomes more crowded (we highlighted last week that Amazon and its competitors are rumoured to offer car insurance products in the not so distant future) and prices more controlled it makes sense for brokers to venture away from these vanilla products, especially if they’re going to clash with major direct players.
Brokers that have specialised in schemes such as van, truck and motorbike policies, for instance, are reportedly doing well so looking at creating niche schemes could be a way of securing new forms of business and profits, especially in a world where consumers are living and travelling differently in light of the coronavirus (Covid-19) outbreak.
If you want to start up a new scheme, especially in one of the areas that are destined to see huge growth in the future, it’s possible to get up and running easily. There’s often the perception that this can be difficult to do but here at SchemeServe we offer an agile platform for operating delegated authority schemes.
SchemeServe can get schemes up and running in a matter of days and make any updates (rate changes, new regulations or new products) quickly and securely.
We can provide IT as well as capacity through our network, which will be invaluable in a world where rates are hardening.
It’s worth paying attention to the unfolding trends and looking for ways to differentiate yourself. In a post-pandemic world those that are likely to survive will do so by adapting to the environment and the needs of the end customer.
Further reading:
How will schemes evolve and where will the insurance industry see growth beyond Covid-19
Image by Bilderandi from Pixabay
