5 August 2021
What is the ‘insurance expectation gap’?

Nearly eight months ago, the Chartered Institute of Insurance (CII) released a ‘Companion Guide’ to help insurers reduce the so-called ‘expectation gap’ between “what customers thought the promise was and what the provider intended.”

Over the past 18 months, the need to claim on insurance policies has spiked, with businesses and consumers alike facing huge financial strain as millions of businesses were forced to close their doors. Never before has the insurance expectation gap been more prevalent, with policyholders left sorely disappointed when claims for coronavirus-related losses were challenged or denied. Insurers have faced unprecedented challenges to their policy wordings, the most high-profile example being the FCA’s appeal to the Supreme Court on behalf of policyholders to have their claims for coronavirus-related business interruption losses paid.

An issue of trust

The Supreme Court case is probably the ultimate example of how the insurance expectation gap can lead to diminished consumer trust, with serious impacts on insurers and policyholders alike.

With this in mind, the CII New Generation Broking Group 2018-2019 recently published a report entitled The importance of ‘trust’ in the SME insurance sector. Its purpose was to review current barriers to building consumer trust within the insurance industry, with particular emphasis on the SME business sector, and to provide recommendations based on its findings.

Barriers to building trust

The report identified a range of factors that have reduced public trust in the industry:

  • Dual pricing for new vs existing customers – having a model that rewards new customers at existing customers’ expense has a detrimental effect on loyalty and trust.
  • Underinsurance – low trust in the industry leads customers to take out the cheapest insurance they can find, rather than a policy that adequately covers their needs. Consequently, when they come to claim, they are at increased risk of having their policy voided, cancelled, or claims only partially paid, further reducing trust.
  • Public perception – negative press about the insurance sector is unfortunately only too common. One bad article can tarnish the whole sector, with a knock-on impact on trust.
  • Millennials – new generations put less stock in brand loyalty and trust than Baby Boomers or Gen Xers, the report suggests.
  • Transparency – it is important that insurers clearly communicate the importance of accurate information from the customer to prevent underinsurance, and to prevent an insurance expectation gap. A lack of transparency means that a customer is less likely to understand what their policy will and will not deliver.

What must be done?

The report concludes with a series of recommendations to improve trust across the sector, including:

  • Educating clients about what their policy can and cannot deliver, and advising on the right level of cover for their circumstances, in order to reduce the expectation gap.
  • Resolving pervasive issues such as dual pricing, negative press and overly complex customer documentation.
  • Ensuring that insurance professionals are trained to a competent standard.
  • Embracing technology, innovation and data sharing.

The CII and customers themselves also have their own roles to play, with recommendations including:

  • The CII should use its existing videos and podcasts to develop a learning app that insurance professionals can use to gain CPD points.
  • It should also spread awareness of the benefits of Chartered status and the CII’s qualifications.
  • Meanwhile, customers should work with their broking partners to understand the value of their insurance policies and ensure they are meeting expectations.

Small steps to achieve great things

By taking just a few of these steps, insurance professionals can make a start on reducing the insurance expectation gap and improving consumer trust in the insurance sector. Improved consumer trust, in turn, will reduce the risks associated with underinsurance and a lack of consumer understanding of what insurance policies can and can’t deliver.