In a world that has never been able to communicate better, it is incredibly sad that financial firms and their clients have never been so far removed. Firms seeking economies of sale and new markets have ballooned in size, and with that growth it has become impossible to offer the face-to-face services of yesteryear and enjoy the loyalty that engendered.
Now that this personal relationship has been shattered – business is driven by price, brand and image, which have become all-important. Potential clients may have no relationship with a firm, but if they buy into its brand and trust the advertising and marketing it puts out, they are more prepared to do business. How accurately that promotional activity reflects the firm’s services is another matter entirely.
Customer satisfaction
The problem for the payment protection insurance (PPI) industry is that all too often the client’s experience after coming through the door is nowhere near as good as it should or could be. No market is perfect, and customer satisfaction will never run at 100 per cent – that’s life. However, when issues over the products on offer, and the way they are sold, spiral into a ‘super complaint’ being lodged with the Office of Fair Trading (OFT) by the Citizen’s Advice Bureau and a market review by the Financial Services Authority (FSA) highlighting a number of ‘market failure issues’, then something really has to be done.
Indeed, according to the FSA, something had to be done by 17 March as this was the date the regulator set for PPI industry bodies to prove they were introducing voluntary steps to address the problems present in this market.
But what should be done to improve both clients’ perception of the PPI market and the practical experience they have of it? First and foremost, the market must be able to show the FSA it is serious about improving, and present solutions that are not only effective and suitable to the regulator, but also have a plan to put them into place quickly. This will also avoid the adverse publicity that would surround any FSA intervention in the market, which would only damage its reputation further.
Client needs
In terms of the changes that need to take place, providers need to bring products to market that are better focused on the needs of the client. Policies need to be flexible in terms of the cover offered, be able to cope with clients paying off their loan early without penalising them and be portable if the loan is switched. The sales process also needs to be managed more effectively to ensure that clients get the insurance they need and that it will actually offer the protection they believe they have bought.
Research from data specialist Defaqto earlier this year, highlighted that too many policies were being sold to clients who were not even eligible for the cover provided and, with commission rates running as high as 80 per cent in some instances, it is clear that all too often the insurance industry is not ‘Treating Customers Fairly’, as the FSA has long demanded.
Single premium policies have also taken a huge amount of flack and rightly so. They do not protect clients from themselves as some have suggested, and simply force them to pay over the odds for a policy that is inflexible and incapable of doing the job. The fact that the British Insurance Brokers’ Association (BIBA) among others has publicly called for them to be abolished says all that needs to be said on the matter, and providers’ refusal to do so simply highlights the margins they are making at clients’ expense.
Baseline standards?
Whether the PPI market decides to implement baseline standards as has been done in the mortgage payment protection market, or improve the sales process through better client information and more detailed factfinds at the point of sale remains to be seen. Standard key fact documents could be introduced, which would help clients compare what they are being offered with other products, as well as clearly seeing what each policy entails, while cross-industry pricing standards would show up the most expensive insurances being sold. All of these options would be positive steps.
The insurance market, in its many guises, has met the demands and needs of its clients for hundreds of years, and although the PPI market may have lost its client focus in recent years, it would not be overly onerous to get it back. This would improve its reputation, see clients more confident to buy into what it can offer, and improve volumes. Surely this has to be the way forward? When brand, image and experience are so important in today’s financial world, how can the PPI industry continue to fly in the face of so much criticism and not begin to offer what its clients want and need instead of what it wants to sell them?
