Spotlight on Packaged Bank Accounts and insurance add-ons

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1 insurance services Spotlight on Packaged Bank Accounts and insurance add-ons The FSA Policy Statement on Packaged Bank Accounts resulting from Consultation Paper CP11/20 is due to be published in July According to the FSA, around 10 million people now own a packaged bank account and the range of packages has nearly doubled in the four years to 2010, although this has increased the complexity of choice for consumers. The regulator is satisfied there is a place in the market for Packaged Bank Accounts, which is supported by research that shows consumers like the ease and simplicity of buying insurance products and related services in a package. However, firms selling these types of accounts will be expected to adhere to new rules around eligibility, suitability and transparency. Some consumers can get value from the way they are packaged, depending on the features they use Financial Services Authority, October 2011 In practice, some providers already have systems and processes in place which cater for the requirements, or are starting to make changes to accommodate the anticipated new rules with revised sales practices and enhanced levels of disclosure, ahead of refining them once the finer points of detail from the FSA are clear. Insurance add-ons are also under the spotlight more widely. The FSA stated in CP11/20 that they see similar risks in other secondary sales of insurance products. This is reflected to an extent by the fact that the scope of the Office of Fair Trading (OFT) review into referral fees includes motor-related add-ons. Other insurance products that are commonly used as add-ons, such as card protection, identity theft and extended warranties, are also the subject of intense regulatory and media scrutiny. 1

2 The question is: how best to evolve the product offering with add-on insurance benefits that customers want and are eligible for, which deliver broad customer value and help maintain and grow sources of additional income? Good product design is at the core Looking at the bigger picture, it seems clear that most providers offering insurance add-ons whether they form part of a packaged bank account, card or other benefits-led proposition should be re-evaluating their offerings in light of the increasing regulatory and media spotlight, and ever changing consumer needs. Eligibility, suitability and disclosure are the watchwords. Even with improved levels of transparency and disclosure, it is clear that add-ons are increasingly being assessed against their ability to deliver higher usage rates, meet higher levels of customer need and ultimately to enhance customer value. But this also needs to work within a viable commercial model, particularly to accommodate new disclosure requirements and with the focus on higher utility rates likely to affect levels of claims. As product development evolves, the focus is likely to shift to one or more of the following, depending on the strategy being pursued: l Stripping out complexity by reducing the number of products and exclusions to simplify sales processes and make products easier to understand all-round l Replacing or enhancing propositions to take advantage of emerging opportunities for example in low-cost healthcare, as a key growth area with the NHS cutbacks l Moving to a more segmented approach with increased tailoring to appeal to specific groups of customers, lifestyles, needs and budgets l Developing new ways of thinking around product and service delivery such as flexible menu-based propositions to better aid retention 2

3 There is no question that certain benefits are already very popular and offer high utility levels travel insurance being one. With over 80% of packaged bank accounts now offering some form of travel insurance cover¹, the vast majority of products now cater for this need. As a top three travel insurance provider, FirstAssist is one of the leading suppliers to banks in this space. The regulatory changes will almost certainly result in companies reducing the number of product add-ons they offer, focusing instead on those which deliver more value to customers. As the emphasis continues to shift to higher utility benefits, this is opening-up new areas of opportunity to innovate. Take low-cost health insurance for example. This is one such area in There is no question which there are opportunities to that certain benefits add value with new and innovative are already very benefits. As the NHS is forced to popular and offer make drastic cost savings and waiting times increase, we would high utility levels. expect to see low-cost healthcare solutions become an essential feature of many benefits-led propositions. By offering broad customer appeal, they can be designed to provide high utility rates and are a convenient way for many customers to access health insurance to supplement areas of need. Depending on how they are presented, life and critical illness are other product lines which have good potential as high utility benefits. 3

4 With you every step of the way The changes taking place provide an ideal opportunity to evolve the product offering with add-on insurance benefits that customers want and are eligible for. The chart below provides a useful decision-making framework when assessing the product options and suppliers operating in this market. Points to consider when looking at product and supplier selection 1 To 2 What 3 Can 4 Does 5 To what extent does the insurance product add demonstrable value to the customer relationship and how is this evidenced? research is available to demonstrate that it meets a proven need, supporting a TCF-based approach? the pricing be made to work within the overall product structure and what does this mean in terms of eligibility and ultimately value to your customers? the supplier have the right credentials to add value in this space expertise, range of products, additional services, flexibility in the supply chain, understanding of the issues and robust processes being key facets? what extent does the supplier also have the capabilities to generate additional revenue through up-selling and cross-selling further cover, along with the skill and capacity to create customer journeys, for example with travel and other upgrades? FirstAssist Insurance Services has many years experience in the Packaged Bank Account space and can help you differentiate your core proposition, unlock new revenue opportunities and generate greater customer loyalty with innovative, high utility and future-proofed benefits your customers want and need. ¹ Defaqto Press Release (July 2010) To find out more, please contact Fiona Lloyd-Williams, Head of Sales and Client Management at fiona.lloyd-williams@firstassistinsurance.co.uk or on

5 For over two decades, FirstAssist Insurance Services has been a silent partner in our markets working behind many of the UK s largest brands. We deliver specialist and bespoke white-label insurance solutions which generate many millions of pounds of additional income for our clients each year whilst extending their customer propositions. In that time, we have built an enviable reputation as one of the UK's leading providers of white-label solutions across our core areas of insurance expertise: travel, protection, budget health and legal protection. Driven as a specialist business by an entrepreneurial, commercial management team, we provide a unique range of products and flexible marketing solutions for banks, insurers, affinity organisations, corporations, intermediaries and small and mediumsized enterprises. FirstAssist Insurance Services was acquired by Cigna in November 2011, which further enhances our capabilities with access to a broader range of health, life and accident products and the benefits of Cigna s global expertise and infrastructure. We provide award-winning levels of customer service to nearly three million customers. With over 160 individually tailored schemes through major UK brands, we know one size does not fit all. From the commercial arrangements to the regulatory relationship, from a full service stand-alone product proposition to wholesale risk provision, we will custom-design the perfect solution to meet your customers and businesses needs. insurance services FirstAssist Insurance Services Limited, Marshall s Court, Marshall s Road, Sutton, Surrey, SM1 4DU Registered in England & Wales No Authorised and Regulated by the Financial Services Authority