Reversing the insurance industry's negative reputation

Vol 47: Issue 2 | July 2024

In short

• Despite a dramatic improvement to the insurance sector’s performance over the past decade, the public’s general perception is that there is a lot more work to do.
• Media coverage of insurance failures, coupled with a lack of coverage of successes and advancements, creates a serious challenge for the reputation of the sector.
• Insurers are focusing on upskilling within their own organisations, as well as offering public education campaigns targeting myths and misperceptions, to begin to change the narrative.

Like clockwork, the minute a natural disaster occurs, the media begins reporting on home and contents insurance failures. If the event is in another country, that coverage might instead focus on travel insurers. And if numerous people die during or after the disaster, life insurers are also likely to be placed under the microscope.

A level of scrutiny can be a positive thing — it ensures constant improvement and a pursuit of excellence across the sector. At the same time, however, it can have a negative impact by ignoring advances in the industry and creating or further reinforcing misconceptions among customers.

Some of these misconceptions seem as old as insurance itself. In the field of life insurance, says Jane Barron, marketing and digital manager at Pinnacle Life in New Zealand, some of these include: a belief that customers will get their premiums back if they don’t claim; that a health loading is a personal judgement indicating the insurance company does not wish to provide cover; and the suspicion that life insurers won’t pay out.

Misconceptions also exist in travel insurance. Todd Nelson, CEO of Cover-More Australia, lists some of the most problematic myths:

• Travel insurers hide nasty surprises in the fine print.
• Travel insurance doesn’t provide cover for many medical conditions.
• Customers won’t be covered if they have a drink while on holiday.
• All policies are the same.
• Travel insurers won’t approve claims.

“While we work actively to debunk these myths, including publishing content on our website and social platforms, it is difficult to get good traction when online channels and platforms and the mainstream media are much more likely to focus on negative stories and declined claims,” says Nelson.

So, what is being done to combat the negative media coverage and educate customers around much-improved outcomes offered by today’s technologically transformed insurers?

But first, the facts

Studies by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, as reported by Insurance Watch, say that between 2016 and 2021 life insurers in Australia paid out between 92 and 94 per cent of claims.

AIA New Zealand’s Annual Claims Data 2022 report says the organisation accepted 93 per cent of all claims received that year, paying out NZ$646.4 million, with life insurance accounting for 42 per cent of the claims.

More than 30,000 AIA health claims were submitted via the online self-service portal, making lodgement and delivery of payouts simpler and faster.

A 2023 CHOICE travel insurance report, published by the Australian Government’s Smartraveller website, says “Australian travellers lodged almost 300,000 insurance claims in 2018-19, the last financial year before COVID-19 travel bans. Almost 90 per cent of those were paid out”.

The top reasons for denying the small percentage of claims were:

• policy exclusions, or events not included in the policy conditions
• the claim amount was below the excess
• the claim was due to a pre-existing medical condition
• the claim was for an item that was stolen while unattended.

Most travel insurers offer specific coverage for people with pre-existing medical conditions. This is vital as, according to the Australian Bureau of Statistics, 49.9 per cent of Australians have one or more chronic conditions. Life insurers offer similar options.

How is the insurance sector changing the narrative?

Barron says the Financial Services Council has been working diligently in the education space to ensure a better understanding of the purpose, function and facts of insurance. In New Zealand, initiatives include financial literacy website Money and You and the new Empower Women network, which aim to improve financial confidence and wellbeing.

“These efforts, along with other proactive measures taken by insurers, enhance financial literacy and trust,” she says.

Insurers, including Pinnacle, have made significant efforts to improve communication with customers. The company’s documents, websites and other communications have a focus on plain English free of jargon, so they are easy for customers to understand. This makes insurance interactions “more comfortable and transparent”, says Barron.

At Cover-More Travel Insurance, Nelson says, educative content is regularly published on the company’s channels.

“We invest in PR and customer testimonials,” he says. “[For example], in the second half of 2023, we invested in a paid editorial campaign, A survivor’s story: What to do if you end up in hospital on an overseas holiday, which ran on a high-profile news platform.”

Still, more needs to be done by mainstream media outlets to help debunk myths and spread news of positive insurance outcomes.

“Having written in the insurance space for two decades, I have witnessed vast improvement in the performance of insurers in our region, particularly around disaster response and the use of technology to improve claims response times.

"Customer experience is being enhanced across the board. It is undoubtedly frustrating for those in insurance to face mostly negative media coverage, but as insurers and peak bodies learn to better tell their stories to the public — and become more media-friendly themselves — I’m confident perceptions will change.”

Negative news creates negative outcomes

In 2022, Australian insurers paid out A$36.5 billion in claims, according to the Insurance Council of Australia (ICA).

“This helped people to rebuild their homes and businesses after natural disasters, to get back on their feet after accidents and illnesses or compensate them for loss through theft or even cyber-attack,” says an ICA spokesperson.

When media focuses only on the negative, the result tends to be reduced insurance coverage or underinsurance, which can cause significant consequences for individuals, communities and the economy as a whole.

The ICA spokesperson says this growing protection gap is a real concern for the industry, as underinsured and uninsured households have significantly less capacity to cope when a significant incident occurs and they need to make a claim.

Barron concurs, pointing to an increase in lapses and cancellations at Pinnacle Life due to the cost-of-living crisis. More people are relying on the generosity of others or on government benefits when they hit hard times, she says.

“The long-term impact of a family coping with the death of the primary income provider can be devastating, turning into a poverty cycle that can be hard to get out of. Ultimately, the losers are often the children, whose life outcomes might have been quite different with life cover.

“In my mind, the media has a fundamental role to play in changing the dialogue, and this means insurers need to work harder to get positive stories into the limelight.”

The Insurance Council of New Zealand (ICNZ) agrees, saying the insurance sector, media and others would do well to promote the great leaps forward in insurance, which result in better service for customers.

“The response to last year’s Auckland Anniversary Weekend flooding and Cyclone Gabrielle is an example of how the industry was able to provide certainty to those affected as quickly as possible,” the ICNZ says.

“These extreme weather events were New Zealand’s second-largest insured loss event, involving over 117,000 claims. Some 91 per cent, or nearly 107,000, of all types of claims had been settled as of 1 March 2024.”

Of course, insurers are taking responsibility for their own consistent improvement, too.

“We continue to invest heavily in training for our own customer service teams and for travel agents and other authorised representatives to enable them to clearly articulate the benefits of travel insurance,” says Nelson. “And we will continue to offer layers of travel insurance policies to cater for different budgets.”

Cover-More Travel Insurance has also developed an in-house, 24/7 medical assistance and travel risk management service. “We invest in this capability because travellers are demanding more connected, more informed and safer travel,” says Nelson.

Insurtechs address emerging customer misconceptions

Even the insurtech space is not free from its own, data-related customer misconceptions.

One example comes from Australian insurtech KOBA Insurance, which offers pay-per-kilometre cover by connecting its tech to the onboard computer of a customer’s car.

“The biggest misconception is that we are a big, bad insurer and want telematic data so we can find more evil ways to deny claims,” says Andrew Wong, KOBA Insurance founder and CEO. “In truth, it’s the complete opposite. We use the telematic data to create new risk models which can be cheaper in many cases, and to build a truly engaging and valuable car care solution.”

He continues: “The data is the key to changing the service offering and resetting customer expectations. Like in all other industries, more data equals more service, equals more convenience, equals more value.”

As one demonstration of this, Wong explains that the smartphone app that packages the company’s electric vehicle insurance offering also includes valuable information about how the customer has managed and maintained the EV car’s battery.

When it comes time to sell the car, evidence of good battery management throughout the ownership period will add to the sale price. 

Read this article and all the other articles from the latest issue of the Journal e-magazine.

Read issue 2 of the Journal