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The insurance industry needs to increase transparency

The insurance industry needs to increase transparency and rebuild trust

A speech by Richard Harding at the Insurance Council of New Zealand Conference on 5/11/19

Good afternoon everyone, I hope you’ve been enjoying this morning’s talks

It is clear from what we’ve heard that we need to do more to deliver good customer outcomes

Confidence in our industry is at an all-time low

You only need to open the paper and you can read about a stream of debatable business practices

And these claims are backed up by ICNZ’s own industry research which shows trust is declining

It is disappointing to read and tough to hear…

….consumers don’t trust us and think we’re not there to help them when they need it

It’s disappointing because I am sure none of us come into work to make things difficult

But it is clear that there is an issue and that we need to change

It would be easy for us to brush off these concerns by saying insurance is a grudge purchase….

…..or people just don’t want to understand

But at its heart, insurance is a vital community product and people do care

Insurance is fundamental to how communities work

It is a core part of the economic stability that allows them to thrive and to respond to disaster

It enables businesses to invest and grow by taking calculated risk

And it gives families the security they need to borrow money, to buy houses and cars, and to create homes and lifestyles

All of these people are comforted by the fact that their insurer will be there to help set things right when things go wrong

So when you think about that as our collective industry purpose, those excuses of being “too hard”, or a grudge purchase don’t stack up

Customers should care about every aspect of their insurance, but we’ve conditioned them to think it’s all too hard

As an industry, we’ve put confusing discounts in place

We penalise people for making a claim by losing their no claims bonus

And we incorporate complex jargon into our policies that even lawyers struggle to understand

And it is up to us to change this

There is currently an asymmetry in transparency, information and knowledge

We expect customers to tell us everything and in return, we tell them the bare minimum.

We design our processes to capture the 1% of insurance fraud, not to care for the 99% of legitimate customers

Decisions and changes are made that impact customers, but these are not communicated transparently

I know that Tower has been part of that problem, but we are committed to a better future

At Tower, we believe that people deserve better and are on a mission to break these industry norms and empower customers

It’s why we were the first insurer to release write-mark approved, plain language policies that have won awards

But this is not where we’re stopping – we’re constantly reviewing and improving

I’ve challenged our team to deliver super simplicity and create a two page policy with NO ifs or buts

This simplicity and transparency of product coverage makes insurance clear so that customers understand what they’re covered for, and there’s no confusion at claim time

It’s also why we went out publicly and committed to removing the duty of disclosure from our business.

This is not just removing the question from our processes, it’s removing all of the implications of this question for customers

We’re being transparent about what we need to know, and when we need to know it, so that at claims time, customers who have been truthful, lawful and honest will simply have their claim paid

Not declined, withdrawn or some other technical rationalisation

As an industry we proudly go out and talk about the fact that we pay the vast majority of claims, and only a minute number are declined

And that may be technically true, but is that what customers think?

Is that what they actually experience?

At Tower, and I’d be surprised if it were different across the industry, 1 in 5 customers end up with what we call a withdrawn claim

So 20% of customers think there is some trick, some technical clause, or a reason they don’t really understand about why we can avoid paying their claim

It is no wonder that confidence is at an all-time low.

But creating those simple, plain-language product wordings and removing catch-all questions is our way to break this industry norm

It’s also why we’ve just completed a $47m investment into a new insurance technology platform

Digital is the way of the future, and our new platform is completely unique in the New Zealand market, removing complexity internally, and for customers

It transparently offers up all the information customers need to make an informed decision, without any hard-sell tactics

And we’re now moving our customers from over 400 legacy products to a core set of just 12 plain language policies without the duty of disclosure

And we’ll be continuously reviewing and improving our products so that every year when a customer renews they’ll be on the latest policy we offer, with any changes clearly and transparently communicated

We’re removing sales incentives, improving and automating our claims processes, and as we convert our customers to our new platform, we remove all admin and finance fees

All done and communicated transparently, to deliver better outcomes for customers.

Transparency is key and is why we led the way on risk-based pricing

We believe risk-based pricing is fairer and we realised that it was going to be tough for a handful of customers, so we did the right thing – we were transparent

Before we made the change we spoke with the government, with media and our customers

We communicated openly and spent time and effort explaining our rationale and supporting customers through the change

And interestingly, recent research we conducted shows that 70% of people think risk-based pricing is fair

It is a fairer model because it stops cross-subsidisation, it means that the small number of people who are most exposed pay the true cost of the risk they face, and it helps people understand and learn about risk

It all comes back to our purpose and enabling communities to prosper by taking calculated risk

We ignited a much needed national conversation around risk management

Risk-based pricing is not new. It is how insurance operates all around the world and what happens every time a customer in New Zealand buys car insurance

So why then, when this is a fairer way forward and a mature conversation and customer education was needed, did the industry shut its doors and duck for cover?

Instead, embargoes remain in place and customers are confused and unnecessarily concerned about the availability of insurance

Is it any wonder that Kiwis don’t trust their insurers and we’ve all been asked to look at the culture and conduct of our businesses?

There is a need for a mature and open conversation

The conversation is not about pricing, it is about risk and how we manage and prepare for it as a country

New Zealand is a small economy. It is one of the riskiest seismic countries in the world and storms are increasing across the Pacific with rising water temperatures in the Tasman Sea increasing their impact here

There is a need for a mature open and honest conversation about these issues with all stakeholders insurers, government and community talking openly and honestly about this?

The government are currently looking at stop-gap measures that do nothing to educate, mitigate and improve preparedness

If we continue down this path, it will leave issues that future generations will need to deal with and unwind

Later today the conference will have presentations on sustainability and resilience (ReZealience) -- I challenge the industry and my fellow CEO’s to step up and have this mature conversation, share information and your knowledge on risk transparently

We have the data, information and experience to help educate and inform the community and government on risk

Mature conversations and sharing our knowledge is part of our core purpose and our role as an insurance industry.

It will help us rebuild trust in our industry and create a sustainable future for insurance

In the wake of the FMA and RBNZ report on life insurer conduct and culture it is clear there is a lot to do

There are other areas where we need to have a mature, transparent conversations

If you apply the conduct and culture lens not just to the private sector, but across the agencies responsible for responding to the Canterbury Earthquakes, you will see failings that remain unresolved today

The old EQC model and how these claims were handled have done nothing to improve the perception of insurance in New Zealand.

While we have made significant progress since then, it has been a long road for customers, insurers and the community and we have long maintained that the current system is fundamentally broken

In the true spirit of conduct and culture, and delivering good customer outcomes, I challenge the government and the EQC to join the industry in and open, honest and transparent conversation on the right model for the EQC.

This requires us all to step back from a position of defending the past and to look at outcomes from a customer perspective

We need to work together to ensure a sustainable customer focused solution is in place, so mistakes of the past are not repeated and the community is prepared

We know we’ve been part of the problem before

We have made some progress, but there remains a lot yet to do,

We are fully committed to improving and being part of an industry that is trusted to deliver good outcomes for customers

I’d like to acknowledge AA, we hold them up as the team to beat

They have a good reputation for looking out for customers, but we want to do more and we’re going to take it further

At Tower we’ve looked at every aspect of our business and our strategy through the conduct review, which has reinforced those good things I have mentioned today, but also highlighted issues that we need to look into more and fix

Everything we do at Tower is centred on how we make things better because we believe that’s what people deserve, and that builds trust

We are working hard to raise the bar for customers, to make them realise the status quo is not good enough, and that they deserve better

So now I challenge you

I ask everyone in this room to go back to your workplace and question your decisions and processes, look at how you communicate, and push hard for greater transparency

The culture and conduct review that all insurers have completed will be a pivotal moment for our industry

And we need to handle this openly, transparently and maturely

We need to communicate and work with employees, government and stakeholders, and most importantly, customers

Because true customer focus engenders trust and this is the only way forward

Thank you, and I hope the rest of the industry joins us on this journey.


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