Customers lose in tit for tat insurance
Life insurance providers using research software as the basis for product development are skewing ratings and ultimately creating a less innovative and customer-focused industry, according to ING head of retail products Mark Vilo.
Vilo said life insurers often use research software, which rate product offerings, to determine how well their products compare with competitors’ rather than as a benchmarking tool. In his view, while this motivates insurers to continually improve upon their products, it means their primary focus is on scoring wins over competitors and not on developing the best solutions for consumers.
“Some insurers will make just enough enhancements to their products to meet the minimum benchmark criteria, while others make just enough changes to put them ahead of the pack.”
The main problem with this approach, Vilo said, is that products that the software scores highly are not necessarily the best for the end consumer.
“Benchmarks and scoring criteria are often attached to features that may market well but are of little consequence to the injured person.
“For example, a benefit that provides cover for accidental injury during the waiting period may suit a blue collar worker, but be of little value to a white collar worker.”
Vilo said the software often fails to acknowledge products that exceed, as opposed to simply meet, the benchmark or include features which are not rated.
According to Vilo, insurers’ focus on research ratings also lead to a plethora of products that create an excess of claims, are therefore unsustainable over the long-term and ultimately amplify costs for consumers.
For example, he said simplifying a product description to improve research ratings and make it easier for consumers to make claims, but not properly pricing for it, results in a “competition spiral”, which can lead to an unreasonably high number of claims for a particular condition.
“This ultimately impacts on the end consumer through the premiums they pay.”
According to Vilo, the issue highlights how important it is for advisers to base their recommendations on clients’ individual circumstances and not on the rating the research software has given it.
Asteron senior life product manager David Wright said life insurance providers typically do take research software ratings into account when developing new products, but those who rely on it are almost certain to end up with inferior products.
He said Asteron regularly holds adviser and consumer forums to ensure its product developers keep abreast of changing requirements and desires.
“We take the [research] software into consideration, but our basis for product development is primarily on adviser and consumer feedback.”
Mark Kachor, managing director of Sydney-based research firm DEXX&R, said insurers have quibbled over the efficacy of ratings software since the software was developed in the early 1990s.
“There will always be companies that aren’t satisfied with the ratings process, but that doesn’t mean the process is bad — it just means they think their product should have got a higher score.”
AUTHOR
Mike Taylor
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