Industry Voice: School of ROCK
Product pricing must be fair throughout the design process, Antony Martin, Managing Director of ROCK Insurance Group, tells Michelle Royle
Protecting consumers and safeguarding against potential travel mishaps is at the core of every travel insurance policy. Whether that’s covering medical incidents, lost items or unforeseen cancellations, the range of risks associated with travel is increasing, as the industry continues to find its feet following years of Covid-19 complications and Brexit setbacks.
But how do travel insurance companies ensure pricing is fair in this new era of travel, and how are products created to meet industry benchmarks? Here we look into the steps taken by ROCK to ensure its products are assessed, designed and managed with a fair value in mind.
Fact finding
Assessing the risks in the ever-changing travel industry remains a complex task and one that product, pricing and compliance teams work to identify during a target market assessment. The first step in approving a product for use is to look at the distribution method proposed to sell the product, and if that is used by the intended target market, whilst assessing if using this distribution method would be ineffective in the sale of the product.
Product design
Once a full assessment in the market is complete, it is then time for the design process. This design includes cover for the specific target market, as well as including benefits that customers would expect to find as standard, as part of their travel insurance policy. Once the team has decided on the benefits of the policy, it’s always worth taking a deeper look at the other products offered by the insurer/client and to consider the amounts of cover offered at each level of the product.
Quantifying and qualifying the product
Whilst fair value for the consumer is the end goal, appropriate pricing must be considered at every stage in the product design. Operating as a white label solution for some of the UK’s leading insurance firms, ROCK works closely with chosen underwriters to price the designed product and build in reasonable margins.
An imperative step to the pricing process is to complete a fair value assessment, ensuring that prior to the product going live, it offers the client’s target market fair value. Travel insurance companies should have measures in place to mirror the principles identified by the Financial Conduct Authority (FCA) as part of the Consumer Duty. Not only are these measures essential, but it’s also wise to consider these touchpoints early in the process, during the assessment stage, in order to then build them into the design.
That is only part of the job, though. Committing to continual fair value for customers and the end user is important, and assessments should be made whenever there is a price change initiated by the insurer, or by the client. This ensures that, at all times, the solution provider is able to provide the customer with a product that is priced fairly and the end consumer with a policy that offers good value.
Creating an ongoing model for continual assessment of fair value should centre around the following questions:
- Does the pricing strategy reflect the customer’s best interests?
- Does the customer understand the benefits of the policy?
- Does the distribution method of the product offer adequate support for product sales?
- How is the product’s value and usage affected by service level performance?
The outcome of all of these will help to determine if the product that is delivered to clients and end consumers is fair value over the entire lifecycle, for all parties involved in the agreement.
Ensuring fair value for clients and customers
Product pricing must be fair throughout the design process, which is why the focus should be on close collaboration with partners and clients. Working with a wide variety of partners to create products that meet the demands and needs of the target market is important to ensure benchmarking and transparency across the industry. For a price to be deemed fair value, a collective effort must be made to set out clear pricing principles that the solutions provider and partners strive to follow.
Annual product reviews provide our clients with a full review of how their product has performed over a set calendar year. Reviews can typically include:
- A brand comparison of those who offer a travel insurance policy to the client’s target market
- An assessment as to whether the product still meets the identified target market needs, and, if not, a plan to ensure that the product will evolve to achieve this
- A fair value assessment of the product, and if the product does not offer fair value, a review of the changes required to offer fair value again
- A review of complaints, including root cause analysis
- A review of both the solution provider and underwriter’s agreed service levels over the review period
- Plans and aims for the product before their next annual product review
- Any regulatory concerns or considerations that the product team has about the product, and responses to any regulatory changes over the review period.
Future of fair value
Following a review by the FCA in July 2022, a new Consumer Duty came into force on 31 July 2023 for new and existing products or services that are open to sale or renewal, and will come into force on 31 July 2024 for closed products or services. The implemented changes will establish better and more concise standards to protect consumers across financial services. With the goal to deliver helpful results for customers, the new Consumer Duty sets out guidance to provide clear communications, information and service that meet the needs of consumers, whilst supporting them and offering fair value.
Therefore, compliance and governance of any new and existing products is imperative to fulfil the requirements set out by the FCA. Travel insurance providers should be working with their collaborators and partners to establish and embed an improved governance structure, including new governance committees, responsible for assessing products, pricing, fair value, customer support and understanding. This approach will allow for the necessary challenge and scrutiny of processes, to consistently improve on products and services.
With these new forums embedded, consumers need to remain at the heart of the business, with key decisions taken to deliver products that offer fair value and positive outcomes for end users.