Health: Consumer confusion

Health Consumer trends features@theactuary.com

CONSUMER

Ronnie Bowes reviews the fi ndings of a report into consumer understanding of protection insurance. It seems that product knowledge is in short supply

When it comes to insurance, we need to be much better at supporting the customer journey. This is the stark message from a report produced by The Syndicate, a research initiative for the UK life and health industry. It is entitled Where Are We On The Consumer’s Radar? Navigating A Route For Protection Insurance and it focuses on four themes: the consumer psyche, education and engagement, the role of the employer, and technology.

To support the report, a survey was commissioned of 3,000 adults in the UK. The fi ndings show that consumers are confused and lack clear guidance on their fi nancial planning, particularly when it comes to insurance. When asked what type of insurance was the biggest priority for them, half said it was life insurance. However, 80% of respondents could not accurately identify the correct description of how a basic life insurance policy works. On the positive side, critical illness (CI) and income protection (IP) were considered more important than mobile phone and pet insurance.

Lack of understanding

When consumers fail to understand or interpret our products it can result in purchasing decisions that don’t meet their needs, a lack of trust and a reduced value in the products we off er. This is exacerbated by too much choice, similarity of products and a lack – or overload – of information. Consumers doubt whether they have chosen the right product. A complex and timeconsuming purchasing process also adds to their insecurity. Nearly a third of respondents were stressed by the choices available when researching protection policies.

Having shed some light on where people’s priorities lay in terms of insurance, the research then explored how much consumers really understood about the products that they

RONNIE BOWES is head of marketing at Hannover Re UK Life Branch Please choose one of the following descriptions that you feel best describes what a 25-year term assurance policy would provide: holders versus non holders A lump sum paid if you die or paid on diagnosis of heart attack, stroke or cancer A lump sum paid if you die or at the end of the policy if you don’t die A lump sum paid if you don’t die before the end of the policy term Don’t know SOURCE: THE SYNDICATE, ‘WHERE ARE WE ON THE CONSUMER’S RADAR?’ Never held Used to hold Holders 0% 10% 20% 30% 40% 50% 60% were considering. Respondents were given a number of defi nitions for the same product and asked to choose the correct one. First, they were asked to consider a 25-year termassurance policy (see right).

This is often perceived as the simplest of personal insurance products, with the highest penetration fi gures and a high level of importance, but the results were surprising. Overall, more people selected the wrong answer (confusing the product with an over-50s whole-of-life product) or didn’t know. Only 20% picked the correct defi nition. The issue here may be that we need to make product titles much more self-explanatory.

To gain further insight, the responses of those who held insurance products were compared with the responses of those who did not. Logic would suggest that somebody who has bought a product would know what they have purchased. However, only 29% of those who held life insurance selected the right defi nition. A further 25% said that they didn’t know what it was and 35% selected the defi nition that suggested that they would receive some sort of payment regardless of whether they died.

Cause for concern

For people who don’t hold a product, it is understandable that their product knowledge is lacking, but, with only 11% identifying the correct defi nition, it is cause for concern. Eff ectively, nine out of 10 non-holders have no idea about the product or its benefi ts and therefore every reason not to make a purchase.

Results for critical illness were fairly evenly split, which suggests consumers did not know the correct answer. By age, 35- to 44-year-olds had the highest understanding. Yet the challenge remains; if people don’t understand what a product off ers; would they be inclined to buy it, particularly given other fi nancial commitments? Once again, the results showed that even those holding a critical illness plan did not necessarily understand the product, or the likely benefi ts at the point of claim. Only 32% of holders understood this product, a fi gure that dropped to 16% for non-holders.

Income protection, often regarded as the product least understood by consumers, fared better. Some 45% of respondents identifi ed the correct defi nition – higher than all other products. This was the most consistently recognised product, regardless of age, sex and socioeconomic factor. This suggests that its more self-explanatory name may be the Overall, what consumers want from the industry is ‘easy-to-understand product information’ and ‘ability to view policy benefi ts and exclusions online’ (50%) to support them in their decision process.

What the fi ndings highlight is that a product’s simplicity is no guarantee that a consumer will necessarily understand it, or recall the benefi ts off ered. Engagement and involvement at the point of purchase, as well as post-purchase, are vital to raise consumer awareness, reinforcing the value of the products. We may also need to think about the way benefi ts are explained, reviewing the use of jargon and, in particular, the names of products. ‘Term assurance’ is clearly not a name the public identify with.

The research also found that consumers want informal information from family, friends and even independent consumer bodies, such as Which? (62%). This is particularly so for the younger generation.

Surprisingly, given this knowledge gap, there appears to be no lack of confi dence among consumers to make purchases. Almost three quarters (73%) agreed that they had ‘a sound knowledge and confi dence to make a decision when taking out a protection product like CI or IP cover’.

In the driving seat

Consumers are happy to research products (dominantly online) along with discussing with trusted friends and family. They also want to feel in control of their purchasing decision. However, only 31% said they were comfortable buying life, critical illness and income protection online, which refl ects a need for industry support. The younger generation, although lacking experience of insurance, expect to be in the driving seat; demand a good deal; and want the options of face-to-face and remote channels to support their purchases.

A third of consumers believe that our products are a luxury they cannot aff ord. Looking for eff ective engagement will increase the level of trust and value consumers have for protection products.

Some people will always be willing to take a risk – almost half believe that state benefi ts will provide a safety net in times of long-term sickness, unemployment or disability and it’s a truism that people tend to be more optimistic than realistic. As a 2012 study by Dr Tali Sharot on ‘optimism bias’ reveals: “People hugely underestimate their chances of getting divorced, losing their job or being diagnosed with cancer and overestimate their likely life span – sometimes by 20 years or more.”

Here and now

Also, when consumers are confused by a choice of products, they look for other features, such as brand. Finding ways to relate products to people’s day-to-day concerns would help them to evaluate the need for protection. Consumers live in the here and now and discount things that are in the future, preferring to worry about them later. Communicating ways to project the benefi ts for the long term, adding certainty and removing doubt will help improve the customer journey. a

FURTHER INFO

The Syndicate is a research partnership between Hannover Re UK Life Branch and the Protection Review. Established in 2011, its aim is to monitor consumer trends and to share observations and ideas among a membership drawn from across the industry. Key members include PruProtect, Zurich and Ageas reason – 54% of holders and a third of non-holders identifi ed the correct defi nition. The lengthy and protracted sales process may also have a positive eff ect on the long-term understanding of the product.