Passion purchases and extra virgins.
I was recently attending the Qorus Reinvent Forum in Milan and one of the topics I was asked to address was Open Data in Insurance. When asked to address such a nebulous topic I was somewhat trepidatious, and I apologise here and now to the largely insurance industry audience at taking such a swift canter through such an enormous topic. One significant slice of this enormous topic was the extent to which ‘open data’ is synonymous with ‘open insurance’. I won’t get too far into that here and shall perhaps save it for a future blog (but, sneak peak, I don’t believe the two should be synonymous at all).
Nor am I going to attempt to set out a paper on Open Insurance here, for it’s far too dense a topic for a blog post and may have you reaching prematurely for a pool-side pina colada, it being summer holiday season. However, I promised my colleagues that I’d say something about claims differentiation this week and a useful place to start that is with the concept of Open Insurance.
If we take a very basic level of how Open Insurance might some day affect consumer insurance, it would likely be in an industry wide adoption of common API standards to improve the ease of ‘switchability’ of insurance providers. The passing of data between insurers should mean that a customer can switch their insurance provider without having to start a lengthy application all over again and worrying about whether they’ve omitted or mis-represented anything.
The same principal has been widely applied through the Open Banking initiative, and indeed many of us also see it when it comes to switching electricity and gas suppliers and so forth. The aim of creating a more fluid banking market is a laudable one, especially here in the UK when we have a banking sector so dominated by a handful of large multi-nationals. It’s also particularly relevant right now as inflation and interest rates are on the up.
To create an effective, competitive market, switchability is a useful tool. As central banks raise interest rates, high street banks are seen as, all too often, slow to pass these rate rises onto savers. Removing friction for savers switching the bank with which they save creates a more effective and competitive market and is, all in all, a better result for consumers.
We see this competitive imperative more starkly when it comes to bank lending. When my mortgage reaches the end of its fixed term I will undoubtedly shop around. I might choose to borrow from my principal bank, but I might equally borrow from any other lender that offers more attractive terms. It’s this that leads, admittedly amongst many other factors, to the criticism that banks are super quick to pass on central bank rate rises to their mortgage offers but rather more sluggish when it comes to rewarding savers.
So what does this mean for the notion of Open Insurance? Well, for me it’s interesting that I used the term “any other lender”. To a large extent, consumers are content to see any PRA regulated (substitute with the central bank or regulator in your home country) bank as broadly the same (despite the recent travails of Silican Valley Bank and, long prior to that, the dimming memories of the global banking crisis). And speaking as a consumer, there’s some merit to this. At it’s most basic level one could see retail banking as essentially commoditised: if you save you receive money as interest, and if you borrow you pay money as interest. Irrespective of the bank you use, it’s the same money.
Of course, neo-banks and others are offering other services, often including insurance, but I would contend from a Zing perspective that insurance is not and should not be seen as commoditised and therefore subject to switchability in the same way.
Insurance is the promise of a future claims service, and in that key feature not all products and insurers are alike; it’s not just receiving or paying the same money. I can compare product coverage, of course. Does it cover theft, loss and accidental damage? Does it cover me anywhere in the world or are there territorial restrictions? Do I need to install a safe, and so on and so forth. I could look at a product’s Defaqto rating to help me with this (see blogs passim). But this is only telling me about the chance of a future claim being valid, and crucially it tells me very little about howmy claim will be settled.
But we’re still not comparing apples with apples, or, as I’m currently contemplating a summer escape to the Mediterranean, perhaps I’ll say we’re not comparing olives with olives. If I think that the very best olive oil comes from Sardinia, and I think that the Nera di Villacidro tree variety is incredibly hard to beat, then it’s unlikely that I’ll consider my local supermarket’s extra virgin variety a suitable substitute. If I were such a person, you might with some justification accuse me of gastronomic pedantry, at best, or snobbery, at worst: it’s just olive oil isn’t it? Well, to someone who’s taken the time to find their dream olive oil, from their favourite producer and favoured region, no, it’s not just olive oil. It’s become a really considered purchase or, one might term it, a ‘passion purchase’. That makes it wholly incomparable with the local supermarket’s extra virgin variety.
It’s all too familiar when it comes to claims made under a standard household or contents insurance policy. If a claim is judged to be valid within the policy terms and conditions then that’s the first hurdle, but then how is the customer ‘put right’? If the thing that’s been lost, stolen or damaged is a ‘passion purchase’, such as designer goods, art and collectibles or jewellery and watches, then there’s a pretty good chance that the customer put quite a bit of thought into that choice of product, brand and retailer. Sadly, not very many insurers seem to recognise this. Most insurers will be trying to work out how they can repair or replace the item as cost efficiently as possible. Many will have central purchasing agreements in place with specific large retailers or distributors and that will be their first port of call. If that doesn’t work out and you push for a cash settlement, the insurer will all too often simply scan the internet for the cheapest deal on a similar product and base their settlement upon that.
Looking at it from the insurer’s perspective there are good reasons for this. Clearly managing the cost of claims is a top priority for insurers. If your business is selling TVs, then you would probably want to find the best wholesale prices for the TVs that you sell. Why should an insurer be any different? If you’re an insurer that settles claims for thousands of TVs each year, you’d want to build up an economy of scale around what you pay for those TVs.
If the customer refuses to accept this approach and demands a cash settlement then, assuming the insurer offered this as an option, it’s also reasonable for them to benchmark what they agree to pay against what such a product would be freely available at on the open market, and this probably involves scouring deals on the internet. This also seems pretty reasonable.
Ultimately insurers should act in a prudent manner with funds that are ultimately derived from premiums collected by all customers. And when it comes to things like TVs and laptops and other fairly generic household goods, it probably works mostly well most of the time.
It all falls down though when it comes to these ‘passion purchases’: the artisanal, bio-dynamic olive oil versus the supermarket own-brand. Simply taking a ‘benchmarking’ or central purchasing agreement to designer products, artworks, bespoke jewellery or collectible watches is not comparing apples with apples, nor indeed olives with olives. It’s this recognition of the frequent inadequacy of household insurance when it comes to settling claims for particularly important possessions that led in large part to the forming of Zing. At Zing we recognise that our most important possessions often deserve a different level of claims service to our ‘general’ household possessions. And we crucially recognise that our customers have made a highly intentional choice of product, brand and/ or retailer and so we involve those very businesses in our claims service. We often say that Zing is built on partnerships, and it’s true. Our products and service are the result of working with businesses that are experts in their markets and their products and know a great deal about what their customers value and expect. If you’ve chosen a particular product from a particular retailer, then you want that repeat shopping experience when it comes to a claim.
So as you open your bottle of olive oil this summer, or whatever else you’re passionate about, you will now, no doubt, consider whether open insurance really is the best thing for the possessions that are most important to you.