7 minute read
Gary Humphreys speaks about dual pricing and collaboration to prevent fraud
A growing group
Gary Humphreys is an experienced insurance professional, enjoying almost four decades in the industry. He is co-founder of the Markerstudy Group of Companies which commenced trading in 2001. In 2018 MGA Markerstudy Insurance Services Limited was created, and is now the largest MGA in the UK. Gary spoke to Modern Insurance about dual pricing and collaboration to prevent fraud
Advertisement
QAs we move into 2020, how important will price be for the customer? What othermajor buying considerations will customers have? A In the insurance space, price is always going to be the main concern for the consumer, perhaps even more so in 2020. Most insurance starts life on an aggregator and customers are used to price being the main consideration. The way the market has been led has created a general consumer belief that pretty much everything on the aggregator is the same product, so price becomes the determining factor. With the upward pressure on pricing, particularly in motor, and the potential challenges coming around dual pricing from the FCA, this could lead to an increase in new business prices.
QWhat stance does Markerstudytake on the recent debates on dual pricing for customers?
AWe’ve always taken the view that loyal customers should never be unnecessarily penalised for the benefit of writing more new business. Consequently, it’s something we’ve never been an exponent of. Most of our business has always been intermediated and the street pricing has always been in the hands of the broker. But with our direct portfolio, which was largely through the Geoffrey brand, our price promise says that a renewing customer will never pay more than the equivalent new business price. Q Collaboration is vital, do you foresee significant advances in and beyond 2020 in the sharing of data, particularlyin the fight against fraud? And what do you believe is required?
AI agree wholeheartedly with the concept of collaboration wherever possible. We do share information, particularly to counter fraud in both the buying and claims processes. One of the current challenges is with the advent of much tougher legislation around data in the form of GDPR. It becomes more difficult to share data with certain parties where there could be a benefit in combating fraud. This is definitely one of the areas that we need to find a common platform to share data in a more intelligent way without breaching GDPR guidelines.
QIn thechallengetodeliverspeed fortheconsumer,with a high-levelvalidation process, can thetwoco-exist? A Absolutely they can! We have a very high level of pre-validation before we even provide a price, which all happens in fractions of a second. And with current technology it’s easily achievable. Q What is the role of collaboration in counter fraud and how does Markerstudyworkwith its partners to prevent fraud? A The partners we work with are mainly the larger intermediaries. We have data sharing agreements which cover fraudulent behaviour, either proven in the past or suspected, so that we can protect our insurer partners from known committers of fraud – both policy fraud and claims fraud. And as fraud gets ever more sophisticated, collaboration becomes proportionately more relevant and important, because as you close one door to one fraud another is opened.
The hot topic at the moment is identity theft and it’s a growing problem. The criminal fraternity uses it to access legitimate insurance so they don’t have issues such as being stopped by routine police patrols. And while that doesn’t necessarily cost the industry money in terms of false motor insurance claims, obviously the perpetrators of identity theft are using it to roam freely and commit other types of crime. These crimes may or may not have an insurance impact but as an industry, both morally and for the benefit of society, we need to be able to prevent that happening because it has a much wider impact than just insurance crime. Many of the other ‘traditional’ methods of fraud have been negated by actions taken by the industry and by the more sophisticated use of data. This has driven criminals down the path of identity theft to obtain what appears on the surface to be normal insurance cover. By the use of data, the industry has detected those repeat offenders who would make exaggerated claims and multiple claims for the same loss with different insurers. Those loopholes have now been closed. What we’re currently seeing is the more serious criminal using identity theft to keep out of the eyes of the law, and this has brought a more serious element of fraud into the
Where criminal activity is concerned, the key is trying to keep ahead of the game to determine where it’s heading and where to put the finger in the dam next!
insurance spotlight. In terms of wider criminal implications, stolen identity can then be used in other ways, for instance, mobile phones being just one method of setting up fake accounts. If you don’t have sufficient systems, access or collaboration with bigger partners you can be left vulnerable, because criminals are investing significant amounts of money into circumventing these checks and balances. The key is trying to keep ahead of the game, where criminal activity is concerned, to determine where it’s heading now and where to put the finger in the dam next! Q Dual pricinghas longbeen in the forefrontofinsurers minds.Aftera super-complaintwas submitted which led to an investigation into pricingpractices, whatneeds to be considered in the newdecade? A This is going to be a very interesting journey. We’re at the tip of the iceberg at the moment. The supercomplaint has firmly caught the attention of both the general public and the regulator. There will be a considered and measured response from the regulators, initially in the shape of firm guidelines and best practice to be followed, rather than any hard legislation, particularly as the regulators have always said they will not regulate price, only practice.
As we head into the new decade I do think that regulatory oversight of dual pricing, and pricing in general, will come more under the microscope and perhaps become more heavily regulated in due course owing to the amount of data available and with the use of AI in pricing. Potentially, and I’m not saying this is happening anywhere at the moment, but there could be scenarios where uncontrolled, or unregulated, AI pricing could lead to customer outcomes that aren’t desirable. So from a regulatory perspective there will definitely be closer oversight of not only dual pricing but also pricing practices at a wider level. Q As a result of the recent FCAreport on dual pricing, the FCAare considering whetherfirms should publish information about price differentials between theircustomers. What impact do you think this would have on the market? A Anticipating what shape this takes is an interesting one. We’ve lived with the prescription of renewal pricing showing the previous year’s price and, despite a lot of fear about that initially, it hasn’t really had a massive impact on renewal retentions or customer migration. The figures remain fairly consistent despite that. So I suppose it depends on what the FCA ask people to publish and how it’s displayed. For example, if you take a worst case scenario that 60% of renewing customers are paying more than new customers, that would reflect quite badly and would lead to consumers migrating away from such firms. However, if it’s more granular and one person’s risk is priced at £500 yet someone with a similar risk profile is charged £450, then is that going to cause a lot of shopping around? It might trigger some questions but it wouldn’t necessarily indicate that people were not being treated fairly by their existing insurers. I think it has the potential to disrupt the market but it depends on how far they go with what needs to be published. In reality, there are some indefensible examples of dual pricing and there are other examples where the gap is very small and can be easily explained by different cost structures and acquisition. What we do need to be careful of as a market, and I’m sure the regulators are all over this, is that generally the UK insurance market is very competitive, particularly on the motor side, and it’s not a market that is restricted by capacity or competition. What regulators don’t want to do is take an action that’s going to lead to increased pricing. Without doubt, the vast majority of customers do get a good deal and do have the ability to move around quite freely. Yes, there are ‘vulnerable’, customers who we need to look after to ensure they’re not exploited. These would typically include older customers, financially unsophisticated customers who aren’t aware of price comparison sites or have the ability to move easily at renewal. And some customers, for all the right reasons, are simply loyal to a brand and don’t research pricing as much as they could. But generally, the market is very well served. GaryHumphreys is Group Underwriting Director of the Markerstudy Group.
