Transparency and Trust: How P&C Carriers Are Simplifying the Fine Print to Improve Customer Relationships

Insurance has thrived over the centuries by offering a simple arrangement. Policyholders pay premiums in exchange for the insurance company’s promise to compensate them if a specific type of loss occurs. 

When the arrangement is relatively simple to understand, why do so many individuals approach insurance with skepticism or outright mistrust? When insurance offers peace of mind in the face of uncontrollable uncertainties, why do many people avoid contacting their insurer or avoid buying coverage altogether? 

Trust remains a major issue, particularly as policies become more complex. Insurance companies can build trust — and customer loyalty — by making policies more transparent. 

How Much Do Customers Trust Their Insurance Companies?

Customer trust in insurance companies is a study in ambivalence. According to one YouGov survey, less than half of respondents under age 55 expressed trust in insurance companies, says data journalist Paul Hiebert.

Among respondents ages 18 to 34, the numbers were tipped in favor of distrust (with 42 percent who don’t trust versus 41 percent who do), while in the 35 to 54 age group, trust outpaced distrust by one percentage point (45 percent to 44 percent). Only respondents over age 55 were more likely than not to trust their insurance company.

Trust Needs Clear Communication to Survive

Every age group surveyed resoundingly agreed on one point, however: Insurance companies use language that is confusing or difficult to understand. Overall, 72 percent of respondents to the YouGov survey agreed with this statement, writes Hiebert. 

The complexity of insurance policies is a symptom of the trust problem in insurance, says behavioral economist Dan Ariey, Ph.D. To reduce the chances that customers will take advantage of them, insurance companies load their policies with fine print meant to address as many potential situations as possible. Customers find this fine print overwhelming and conclude the insurance company is trying to hide something, so they begin to think of ways to claim extra money. 

The distrust cycle becomes self-perpetuating. Or, as one Willis Towers Watson report put it, “distrust breeds misbehavior which fuels more distrust.” 

Why Encouraging Customers to Read the Fine Print Isn’t Enough

Some insurance companies have attempted to overcome customers’ fear of fine print by rewarding them for reading it. For instance, a Florida-based travel insurance company inserted a $10,000 contest prize into its fine print; 73 policies were issued before a customer finally read the entire policy and claimed the prize, reports Josh Hafner at USA Today.

Hidden prizes may encourage reading the fine print, but they don’t necessarily build trust. In most situations, not only do customers fail to read their policies, but far too many insurance agents, brokers and other professionals fail to read them too, says William C. Wilson, Jr., retired associate vice president at the Independent Insurance Agents & Brokers of America.

When the pages of fine print don’t get read, ethical as well as practical issues may arise, according to researcher Oyvind Kvalnes in the Journal of Business Ethics. To maintain customer loyalty and avoid legal or ethical quagmires, policies need to be clear and transparent.

agent shakes a client's hand; representing greater transparency in insurance

The Business Case for Improving Transparency

Digital transformation has changed customers’ expectations regarding information transparency, as well. Insurance customers are used to reading reviews and looking up information on products and companies before they make a purchase. 

Customers also reward transparency in the companies they buy from. In one study, 74 percent of customers said they’d switch to brands that offered increased transparency, while 80 percent said they’d be more loyal to transparent brands. Nearly 50 percent will pay more for transparent products and services, says Sean Harper, cofounder of insurtech startup and licensed insurance carrier Kin Insurance. 

Two-way transparency also appears to boost customer satisfaction and service quality, at least in some industries. For instance, a study in the Harvard Business Review found that when cooks and diners in a restaurant could see one another, the cooks’ service speed increased by 13.2 percent and the diners’ satisfaction rose by 17.3 percent. “Transparency between customers and providers seems to really improve service,” notes Harvard Business School assistant professor Ryan W. Buell, one of the authors of the study.

When insurtech startup Waffle asked insurance customers what their ideal insurance experience would look like, customers’ answers focused on transparency, says Quentin Coolen, cofounder and CEO at Waffle. Specifically, customers wanted policies that were easy to understand. They didn’t want to wade through piles of exclusions. And when a claim hit, they wanted to be able to talk to their insurance company in a language they understood.

Fortunately, tools exist to help insurance companies meet customers’ expectations surrounding transparency and communication.

tablet and laptop with charts, representing greater transparency in insurance

Using Technological Tools to Build Transparency

Today’s technologies have increased customer demand for transparency by making it easier than ever for customers to find information on various businesses and industries. The same tools that have changed customers’ expectations for transparency can also be used to meet those demands.

Reducing the Fine Print With Seamless Information Delivery

The push for universal data platforms to add transparency is already underway in health insurance, where price transparency has become a national concern, writes Robin Gelburd, president of FAIR Health. 

“Transparency involves moving data from payers or providers onto a platform that consumers and others can access,” he explains. When customers can access insurance information and understand it easily, they’re more likely to trust its source: their insurance company. 

Some insurers are already taking advantage of digital tools to improve customers’ ability to read and understand their policies. For instance, Berkshire Hathaway recently released a small business policy that combines coverage for workers’ compensation, various forms of liability, property and vehicles. The policy is named “THREE” because its fine print is exactly three pages long, writes Avi Ben-Hutta at Coverager.

While THREE has garnered some praise for its simplicity, it has also taken criticism for the same reason. For instance, THREE contains no options for endorsements, customizations and personalizations.

While THREE makes much of its three-page size, digitally-delivered policies aren’t constrained by numbers of pages in the same way. When information is presented digitally, endorsements can be added to customize a policy without overwhelming readers — if they are presented in plain language and in a thoughtfully-designed manner for navigation. 

Connecting the Digital Dots: Transparency, Personalization and Security

Improved transparency offers a natural complement to increased personalization, another rising customer demand in insurance. 

Here, insurance companies can take a cue from banks, which have leveraged customers’ willingness to share personal data in order to provide personalized services and build trust, says Alan McIntyre, senior managing director of global banking at Accenture. About 60 percent of bank customers are willing to share more personal data if it means more personalized services and improved terms.

Insurance companies that use personalization to build trust must emphasize customer data privacy and security, however. An Accenture study of 900 companies found that a loss of trust was the reason nearly half of respondents had switched to a competitor’s services, say the study’s authors, Piercarlo Gera, Alan McIntyre and Erik Sandquist.

Of the 7,000 companies surveyed, approximately 900 experienced a material drop in customer trust. Over two years, these companies lost an estimated $180 billion in revenue as a result, say Brian Eggers and fellow researchers at Accenture.

When insurance companies are serious about data security and transparent about their security processes, customers gain an added sense of confidence when interacting with their insurer. They know that personalization may make their policy’s fine print a bit longer, but they understand why they have more reading to do. They’re also more willing to provide the information needed to create tailored, effective coverage. 

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