Blog | Jun 1, 2021

A New Day in Insurance: How Intelligent Automation Can Help You Tackle FCA Pricing and Fair Value Regulations

A New Day in Insurance: How Intelligent Automation Can Help You Tackle FCA Pricing and Fair Value Regulations

Using RPA and intelligent automation technology to support FCA related operational changes

FCA regulated insurance firms that offer personal motor and home coverage will spend the next four months preparing to meet new pricing and fair value regulations, in a significant step change for the retail insurance sector in the UK.

At a time when companies are just stabilizing after a period of pandemic-driven operational change, these regulations mean more challenges ahead, particularly to ensure that the implementation of changes to product, pricing and processes happens on schedule.

The new regulations address several areas of the customer experience, including targeting price walking practices, ensuring more transparency for vulnerable customers, and aiming to ensure that customers are getting real value for money. Meeting the requirements will likely involve multiple projects across departments and require considerable operational resource allocation.

Organizations that have intelligent automation tools available to them will surely have a leg-up on those who don’t. Having the tools to re-examine and reshape processes, along with an intelligent digital workforce that can support crucial processes involving data handling and facilitate omni-channel, end-to-end policy management, could significantly reduce the overheads required to see the changes through.

Where do we see intelligent automation adding value? These areas drawn from the FCA Final Report: General Insurance Pricing Practices are a great starting point.

Reporting requirements

While the FCA’s intention isn’t to place an unreasonable burden on insurance firms with reporting requirements, initial and ongoing reporting will be part of the new rules. Reporting often takes more time and resource than expected. We’ve seen the impact of new reporting requirements introduced at short notice on other industries we work with, such as the NHS, which has been reporting regularly to the government on COVID-19 measures and vaccinations.

The current proposal from the FCA is that a nominated senior individual takes responsibility for confirming compliance of new rules and ensuring that the new practices put in place are not discriminating against long-term customers. The requirement will be complementary to reports required on value-measuring data, such as claim frequency, claims acceptance rates, average claims pay-outs, and claims complaints across a wide range of products.

Regular reports on retail home insurance and motor insurance will be required. Data will be split by product and also by sales channel, length of time a customer has held coverage with a firm, and where applicable, on books of more than 100,000 policies, as well as closed books of business. There may also be other splits of data depending on the operating model, for example where an insurer sells through an intermediary.

This results in a fairly complex set of reports as well as time spent on recording and gathering data, which has an impact on people, systems and processes. An intelligent digital workforce can help to support the reporting process, reducing the manual burden from the outset.

Insurance policy renewal and cancellation

It’s not just renewal pricing that is under scrutiny from the FCA, but also renewal practices: in particular, how auto-renewals are managed, and the ease of cancellation should customers wish to do so. While it’s acknowledged by the FCA that auto-renewal helps to avoid situations where a customer is inadvertently lacking insurance cover for a period of time, it’s also an area where there can be a lack of transparency and poor customer experience.

Making changes to renewals is easier when processes are supported by a digital workforce, which can also be used effectively to manage data from a full range of customer channels. The new rules propose that customers should receive the option to stop their policy auto-renewal via a range of methods, including by telephone, email, online and by post. But an omni-channel approach needs data alignment and a standardized process on the back end, particularly if there are disparate systems involved.

Automation can be used to support consumer awareness practices throughout the renewal process using a coordinated multichannel approach. It can support easier policy management, for example, by facilitating the acceptance or rejection of auto-renewal via text, and because every transaction has a full audit trail, it’s easier to report on.

Where there are cancellations, automating the processes behind them helps to connect customer-facing staff, communications channels and systems and enables greater transparency for the customer.

Competitive Intelligence

With the requirement for consistent new business and renewal pricing, it’s going to be crucial to monitor competitor prices to benchmark both primary products and ancillaries.

A digital workforce can be tasked with searching the market daily for insurance premiums within set criteria to help with pricing strategies and ongoing competitive intelligence. In addition to pricing, data can be collected on inclusions and exclusions on policy documents and other areas of added value that insurance providers introduce.

Claims as a value driver

Fair value is a clear driver for the FCA’s measures and, as indicated by the proposed reporting requirements, claims will be an important factor in compliance.

Claims is essentially the primary way that a customer can realize the value of a policy, as a fulfilment of a promise. So ensuring that the claims experience is frictionless and positive for as many customers as possible is crucial.

Part of the new pricing measures involve preventing instances of what the FCA calls “consumer harm,” and claims affect how this is measured. The percentage of the premium that goes towards handling and settling a claim will be used as an indicator of value for money. This claims ratio will be measured against an industry average for a reporting channel. Measurements, such as the gross incurred claims ratio, will also be used to measure fair value.

Intelligent automation can support claims in multiple ways, as laid out in our recent e-book, Connecting the Dots on Claims with Automation. The most important of these for the customer is providing a fast settlement and a minimum stress way of reporting a claim. However, this cannot be achieved without creating a fast and seamless experience behind the scenes for the claims team and optimizing how systems and data are used.

Using automation as both a way of keeping down claims operating costs and a way of improving customer experience works in favor of the new regulations, while supporting your business commitments.

Raising the game with the competition

Such a significant change to pricing strategy, structures and processes is a strain on business resources, but it’s also a great opportunity to examine the effectiveness of products and services and how the processes that support them can be improved.

Change is a chance to innovate and with standardization of prices, insurance providers will need to be that much more creative with their products and the value they provide to compete. Value, in this case, may mean better use of customer data to provide extra services and personalization or possibly creating a rewards-based product that supports risk management.

Examples of companies innovating to compete in the health insurance space include Vitality Health, which rewards customers for a healthy lifestyle by monitoring activity levels and providing lifestyle rewards. In the auto space, telematics insurer ingenie helps young drivers by reducing the price of their policy based on how well they drive each quarter. In both cases, customers are happier to share data because they are seeing tangible value.

There’s no reason a similar approach could not be taken in the home insurance sector, especially with increasing use of connected home technologies such as Ring doorbells and Google Home.

Innovative products don’t have to have expensive tech to support them. An intelligent automation platform that combines RPA with its ability to work fast between multiple systems, and that incorporates AI skills such as OCR and NLP can work with your existing tech to map and streamline processes that support new products.

A further opportunity to drive transformation

While the pandemic has accelerated the transformation agenda, a forced review of processes that support pricing and renewals provides further focus for insurance providers.

Competition for motor and home insurance coverage is likely to become stiffer following implementation of the new measures, and diversifying with different product types and through sub-brands will become even more important.

Building intelligent automation into your implementation strategy allows you to do more with your existing systems, channels and people, while helping with improvement and standardization of processes that ultimately creates a better customer experience. With the final FCA guidance imminent, this is the time to ensure you’ve got the right software in place to help you meet the implementation deadlines and create innovative customer-focused services for the future.

Learn more about our intelligent automation solutions for insurance