07 November 2016
Insurers insist that they don’t compete entirely on price. But if that’s the case, how do insurers in the Middle East compete? To get to the bottom of this issue, it’s worth delving into the buyer-seller dynamics at play in the insurance industry.
When it comes to insurance, remember that, as a customer, all you’re really buying is a promise to be compensated in the future if the insured event takes place. Insurance is unlike almost any other industry in this regard, because instead of purchasing something you can see, feel and judge today, you’re having to buy something ethereal and future-based. You give your money for the privilege of trusting them to do what they are supposed to do in the future.
This makes it very difficult for the customer - how do you know which company or product is better? Of course, Insurer A can write down some fancy words on a brochure explaining the benefits of its policy versus the competition’s, but Insurer B can and will write down exactly the same words on their brochure. And because there’s nothing ‘real’ that the insurer can offer customers, how can anybody be expected to make an informed choice?
Turning the question upside down, how can the insurers persuade you to choose them, given they have nothing tangible to offer? The short answer is that they largely can’t.
One of the main factors at play here is the fact that the insurance industry sees highly intermediated distribution. Even at the point of sale, the insurer will have next-to-zero contact with the customer. Instead, customers deal with comparison sites, brokers or some other intermediary. As a customer, you’ll virtually never see, hear or feel the insurer.
And that dynamic hardly ever changes. If the event that you’re insuring fails to take place, you’ve no need to speak to the insurer at all. If you don’t have a claim, you’ll never interact with them.
This problem is compounded in that, when a customer does interact with an insurer, it’s likely to be on the worst day of their life – the day a claim does need to be made. The previous lack of contact makes the insurer rather impersonal and scary - you don’t have experience of interacting with them so you don’t know what kind of creature you are dealing with or how it might behave. All this stress comes on top of the emergency at hand.
So if the insurer doesn’t interact with the customer, what is left for the insurer to differentiate itself on? All that is really left is price and brand. Price competition doesn’t usually end well for anybody – the ultimate winner will be the insurer that can operate at the lowest cost base. That sounds good until you realise that lowest cost could also mean poorest service and skimping on claims.
The alternative is to go down the branding and marketing route, and somehow position your brand as one that will be there when the customer needs it most. But even that’s difficult. It’s hard to make a big deal of a marketing message that boils down to, “we will pay you when you have a claim,” because that’s the only thing the insurer exists to do.
Indeed, if you were to name five insurers in the Middle East (could you name five?), would you be able to say what it is they stood for? And if not, what would be your conclusion about how well the insurance industry is branding itself? And indeed, what can be the factors you take into account when you next make your insurance buying decision?
The future of our industry is – or at least should be – in value comparison – picking the product that delivers the best coverage (and service levels to support that coverage) within any consumer’s given price range. Given how deeply commoditised the market is at the moment, this might indeed be the only way forward.
So, the next time you hear a friend from the insurance industry bemoan the fact that the key driver of competition is price, tell them that they are absolutely right and consumers really should be concerned about service levels and the additional benefits that insurers offer to their customers. Then - adopting your best quizzical expression – ask your insurer friend about exactly what those benefits and services are.
Any opinions expressed here are the author’s own.
Insurers insist that they don’t compete entirely on price. But if that’s the case, how do insurers in the Middle East compete? To get to the bottom of this issue, it’s worth delving into the buyer-seller dynamics at play in the insurance industry.
When it comes to insurance, remember that, as a customer, all you’re really buying is a promise to be compensated in the future if the insured event takes place. Insurance is unlike almost any other industry in this regard, because instead of purchasing something you can see, feel and judge today, you’re having to buy something ethereal and future-based. You give your money for the privilege of trusting them to do what they are supposed to do in the future.
This makes it very difficult for the customer - how do you know which company or product is better? Of course, Insurer A can write down some fancy words on a brochure explaining the benefits of its policy versus the competition’s, but Insurer B can and will write down exactly the same words on their brochure. And because there’s nothing ‘real’ that the insurer can offer customers, how can anybody be expected to make an informed choice?
Turning the question upside down, how can the insurers persuade you to choose them, given they have nothing tangible to offer? The short answer is that they largely can’t.
One of the main factors at play here is the fact that the insurance industry sees highly intermediated distribution. Even at the point of sale, the insurer will have next-to-zero contact with the customer. Instead, customers deal with comparison sites, brokers or some other intermediary. As a customer, you’ll virtually never see, hear or feel the insurer.
And that dynamic hardly ever changes. If the event that you’re insuring fails to take place, you’ve no need to speak to the insurer at all. If you don’t have a claim, you’ll never interact with them.
This problem is compounded in that, when a customer does interact with an insurer, it’s likely to be on the worst day of their life – the day a claim does need to be made. The previous lack of contact makes the insurer rather impersonal and scary - you don’t have experience of interacting with them so you don’t know what kind of creature you are dealing with or how it might behave. All this stress comes on top of the emergency at hand.
So if the insurer doesn’t interact with the customer, what is left for the insurer to differentiate itself on? All that is really left is price and brand. Price competition doesn’t usually end well for anybody – the ultimate winner will be the insurer that can operate at the lowest cost base. That sounds good until you realise that lowest cost could also mean poorest service and skimping on claims.
The alternative is to go down the branding and marketing route, and somehow position your brand as one that will be there when the customer needs it most. But even that’s difficult. It’s hard to make a big deal of a marketing message that boils down to, “we will pay you when you have a claim,” because that’s the only thing the insurer exists to do.
Indeed, if you were to name five insurers in the Middle East (could you name five?), would you be able to say what it is they stood for? And if not, what would be your conclusion about how well the insurance industry is branding itself? And indeed, what can be the factors you take into account when you next make your insurance buying decision?
The future of our industry is – or at least should be – in value comparison – picking the product that delivers the best coverage (and service levels to support that coverage) within any consumer’s given price range. Given how deeply commoditised the market is at the moment, this might indeed be the only way forward.
So, the next time you hear a friend from the insurance industry bemoan the fact that the key driver of competition is price, tell them that they are absolutely right and consumers really should be concerned about service levels and the additional benefits that insurers offer to their customers. Then - adopting your best quizzical expression – ask your insurer friend about exactly what those benefits and services are.
Any opinions expressed here are the author’s own.
