2010 Report Updates: FS cannot function without trust
Thursday, 30 December, 2010 2 Comments
This is a “headline” so obvious that it may well be a contender for non-news item of the decade…
So you would be entitled to assume that strategists within major banks and insurers would be busily scurrying around frantically innovating new products and services that simply ooze customer value. Frankly, anything that rebuilds trust and engenders loyalty, in an effort to undo the reputational damage done in recent years.
Yeah right. Customers aren’t really that important…yet!
I commented upon Edelman Trust Barometer & “Which?” reports earlier in the year – found at the following link:
I know I have been going on about this for a long time now BUT, from the distinct lack of any change of attitude or strategy, it appears that the customer message has not been taken on board. Further evidence of the arrogance of FS and, in my humble opinion, a very serious mistake. As we enter, what will be, a difficult and painful period for UK (and beyond) the realisation that the perpetrators of so much of the financial misery have “escaped”, unscathed – apart from a lot of Governmental and Regulatory rhetoric, will lead to a public backlash! Of course this has most serious implications for Government as society suffers.
FS firms who wait before offering truly innovative solutions and reintroducing customer value – instead of stripping it our for themselves and for their distributions channels – will only confirm, to the informed observer, that they have failed to learn any lesson from past, inglorious, failure.
To adapt the words of Warren Buffett “If value is what you take price is what you will pay”
I sincerely hope that there are still some leaders within the industry who share my concerns and have the foresight, if not to contribute to the process of rebuilding trust – for the industry’s or for the sake of their customers – then to provide a lead for the sector. With it , to seize and perhaps retain, sustainable competitive advantage.
Of course the option is always there to “stick with the pack …in the race to the bottom”. That’s easy to do and, perhaps, results and reinsurance costs will continue to be favourable and the customer – media – regulators spotlight will avoid the insurance sector for a while longer.
Of course my background is UK general insurance so that is the area I feel best able to comment upon. If I were an insurer I would not want to rely for income upon a distribution channel for whom the term “relationship” is quantified by % or £! This is NOT how interdependent organisations work in 21st century. This provides no basis for the type of tri-partite trust that makes business sense for customers – brokers – insurers.
What does it say about the insurance industry that some of the most prominent brokers, aided and abetted by some of the best known insurance institutions, have abandoned the stability and “pull marketing” that comes from QUALITY of advice and service leading to income and loyalty? Preferring instead to focus on QUANTITY by suppressed pricing for “push marketing” to secure sales and market share.
Only one strategy is sustainable, is transferrable to a social media environment and can withstand the kind of scrutiny that comes in tough economic times. Smarter customers now count upon effective, two-way communication, referral and recommendation to secure genuine value. These are the type of customers who want to be treated as stakeholders with all the “privileges” that such status brings…like TRANSPARENCY. Only ONE of these strategies can afford to provide this.
What happens when it all starts to breakdown?
The era of reliance upon selling protection policies at premium levels that are inflated to pay unsustainable, unjustified and (some – like me – may say) immoral commission levels, has a limited lifespan. That spells bad news for insurers without the backbone to tackle these key issues. You need to assess if you and your company can sustain the reputational damage – whether brokers, policyholders and investors will support the strategy if/when the spotlight hits.
Some of the “most successful” brokers simply can’t operate with sustainable commission structures because they cannot afford for the “investors” (to whom they are deeply indebted) to review their investment strategy – because, tough times bring new opportunities, especially when there are rising interest rates and a lack of liquidity! With a loss of trust, market, a “war chest” to woo, to deliver growth and smooth over problems, the lose of loyal staff and customers leaves a price sensitive client base to be serviced by inexperienced and undertrained staff whose skillsets are not adequate for market conditions that they have not experienced or been prepared for.
With the broker channel stripping-out customer value, by favouring providers based upon remuneration, selling on price and failing on service, there is little incentive for insurers to indulge in product differentiation or cultivating and rewarding a culture of risk prevention. Therefore, a larger quantity of less thoroughly underwritten, under-priced, risks may satisfy the need for short term results – the vanity of turnover – BUT at the expense of a weakened financial structure. A lack of reliable investment income merely compounds the short term problem and, failure to invest in training, stores-up issues for the future. All this as a precursor to an uncertain and turbulent economic phase.
Past experience would suggest that the economic and social climate will lead to an increase in claims. Particularly the fraudulent variety! Except this time the increase in material damage losses (theft, fire, etc.) may be exceeded by the costs and settlements associated with “professional risks”.
With the increased likelihood of reduced market liquidity the most resilient and adaptable will survive but the most trusted will flourish.
It’s a very foolish insurer who underestimates the risks and the warnings have been sounded…
Insurers, retail banks or consultants, who recognise the symptoms and for whom these are already areas of concern please do not hesitate to get in touch. I would be happy to explore ways in which I can “contribute”. Our goal is to aid FS to build robustness (or resilience) instead of creating an environment for systemic risk.
An integral part of our approach is a unique risk and rating model that “extends the conventional risk horizon”. Ours is not a consultancy-based approach and comes form a rigorous scientific environment, bringing benefit to customer and risk carrier alike through crisis anticipation and improved, quantitative, decision-making.
I have well-formed solutions for managing the transition and mitigating the costs of evolving from the current model (quantity/protection/price) to a sustainable transparent model (quality/prevention/value).
I can offer considerable insight into what will be required for the future FS landscape: incorporating social media and web technologies; for future stakeholder communication, service delivery, marketing, recruitment and learning.
I would be delighted to discuss this along with a some “blue ocean” commercial products and community (partnership and affinity) development/distribution strategies.
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