Posted on Feb 01, 2012 by Sergio Ulloa
The United Kingdom is one of the world's leading insurance markets
, but how well do their own citizens really understand the intricacies of the trade? A new study released this week by the Association of British Insurers (ABI) finds out which protection products have proven to be the hardest to understand by the general public, how this affects the savings culture, and what perhaps UK insurers can do to address these shortcomings.
The ABI conducts a survey of average UK consumer behaviour and insurance product knowledge ever quarter, with each poll based on a representative sample of at least 2,500 unique respondents. Statistics for the fourth quarter 2011 were released this past week and offer an interesting insight into how consumer attitudes towards savings and insurance have changed over the past year as well as what challenges and opportunities face the UK insurance industry going into 2012.
The ABI found that general savings behaviour in the UK has continued to adapt to the country's ongoing economic malaise
. With living standards under increased pressure and short-term prospects relatively dim, an increasing number of survey respondents now recognize the need to save. When prompted by the ABI, 57 percent of survey respondents classified themselves as a 'saver', while 64 percent of those polled admitted that the need to save had increased over the past 12 months and 81 percent indicated they would like to save more each month. Of those savers, the ABI noted that bank savings accounts (66 percent), insured savings accounts (64 percent) and pension plans (32 percent) remain the most popular savings tools used.
Despite this apparent interest in financial planning however, when asked whether the benefits of saving in the UK had changed over the last 12 months, 64 percent of respondents claimed that the benefits had in fact gone down during 2011. The ABI's findings were reinforced by the fact that 28 percent of respondents reported having no disposable income at the end of the month to save, while 48 percent admitted to having less than £100 available. Looking forward, survey participants were asked how they might vary their non-pension savings behaviour in the next year; 47 percent believed their level of savings would not likely change, 23 percent said they would reduce their level of saving, while the remaining 21 percent indicated that they would increase the amount they save. The majority of respondents overall felt that having more disposable income, better returns on saving and increased government pension stimulus would encourage them to save more, with 67 percent, 49 percent, and 21 percent of respondents respectively. The ABI noted that given the country's precarious economic situation, saving for the future, and in particular planning for retirement
, will remain a very important issue for Britons going forward. Nearly half of all respondents admitted that they were not saving or under-saving for their retirement at present.
A key factor contributing to the UK's poor savings preparation has been the general public's lack of knowledge about mainstream financial services products. The ABI asked the q4 2011 survey participants to rate a variety of insurance and savings products on a scale of 1 to 10, both in terms of how well they understood how the products work, and how confident they were in purchasing and using said products when they needed to. Private insurance, in particular, confuses the majority of consumers. According to the ABI study, payment protection insurance (PPI), critical illness (CI) cover, and mortgage payment protection insurance ranked the lowest in terms of general understanding. Amongst the survey's 2,500 respondents, 52 percent rated their understanding of PPI at five out of ten or below, with 36 percent rating similarly on knowledge of CI policies. Private medical insurance (PMI) and life insurance fared a little better with around half of those polled (52 and 48 percent respectively) describing the products as very well understood. It is perhaps no coincidence then that these products were amongst the least owned by survey participants. The most well understood financial products overall were savings and loans, with 67 per cent and 62 percent of respondents scoring them between seven to ten in terms of understanding. Amongst insurance lines, automobile products were the most easily understood in the UK.
Respondents were then also asked how difficult they find it on average to compare the benefits and features of each type of financial or insurance product. On this question, PPI and CI policies once again finished towards the bottom, with 55 and 45 percent of respondents indicating considerable difficulty in judging these products' merits versus competitors. Pensions and annuities followed suit with 45 percent of respondents rating their ability to compare these products at five out of ten or below. Private health and life insurance also suffered in terms of product comparability, with around a third of respondents claiming difficulty while shopping for policies. Automobile insurance once again finished towards the top of average consumer understanding. Overall however, the ABI observed that the UK consumer's base understanding of financial and insurance products surpasses their ability to shop for them in confidence.
The ABI survey tracked several other common misconceptions UK consumers were having in relation to insurance and financial service products. In travel insurance, the study found several instances wherein respondents misunderstood basic tenets of policies. When asked what situations were covered by a standard travel insurance policy, a third of respondents believed exotic claims like airline failure delay and sports injuries would be covered. While additional waivers can certainly be purchased for these risks, one should not expect to claim them retroactively. Meanwhile, of the scenarios that are actually covered by a standard travel insurance policy, the least selected option was 'loss of earnings if injury/illness delays return' with 24 percent of respondents. The ABI noted that those that did not select this option could be at risk of not claiming for this scenario should it occur. In addition, respondents were asked what scenarios should be covered by a standard policy, with airline failure delay (68 percent response) and cover for pre-existing medical conditions (54 percent) proving the most popular. Expatriate medical insurer
s take note.
In motor insurance, a field fraught with heavy claims and soaring premiums, respondents were asked what the industry could do to drive costs down on both sides. 'More responsible driving behaviour' and 'improved car security' were the most popular selections. Following these responses, the next highest-rated categories were 'reduction in lawyer fees' with 65 percent of respondents rating this at 7 or above out of 10, and better whiplash prevention mechanisms (a key contributor to increasing premiums), which was rated at 7 or above by 57 percent of respondents.
British consumers clearly find protection amongst the hardest products to understand and this affects their ability to save intelligently and prepare for their future. The ABI's latest survey should serve as a warning to the UK insurance industry about its difficulties in relating to consumers. Simplifying product terminology and further adjusting to the UK's economic reality may prove to be necessary steps for British insurers if they wish to thrive and attract more clients in 2012 and beyond.
Association of British Insurers
The ABI (Association of British Insurers) represents the collective interests of the UK's insurance industry. The Association speaks out on issues of common interest; helps to inform and participate in debates on public policy issues; and also acts as an advocate for high standards of customer service in the insurance industry. Every day, ABI members pay out an estimated £155 million in benefits to pensioners and around £58 million in general insurance claims.