More than a decade ago, TEAMmakers inc. carried out a study of the Canadian insurance marketplace, from the consumer perspective. Industry panelists involved in the study - Bridging the Gap Between the Insurance Industry and its Consumers - reported "consumers have lost confidence in the insurance industry and a trust gap has formed." At the time, the study pointed to "a climate of increased skepticism" that was driving consumer distrust in the insurance industry.
In the spring of 2008, Aviva Canada Inc. launched an advertising campaign to "change" the way insurance is done. In a press release, Paul Fletcher, senior vice president of brand marketing, stated at the time the company's "investigations told us consumers feel disconnected, and distrustful of insurance."
And a recent study titled Insurance 2020: Innovating Beyond Old Models, by the IBM Institute for Business Value, found that 58% of consumers surveyed distrusted insurance companies.
Should brokers be concerned? Absolutely. In the relationship marketing literature, trust is invariably positioned as a key antecedent to the development of sustained, successful business relationships. Direct links between trust and loyalty behaviour, such as repeat purchasing and word-of-mouth promotion, are continually established and verified.
Quite simply, higher levels of trust lead to higher levels of loyalty - and this means higher levels of profitability. The question is: Why do consumers have feelings of mistrust towards the insurance industry? The answer may be in the nature of insurance itself.
Search, Experience or Credence?
Products and services are believed to exist along a search-experience-credence continuum. What does this mean? Search qualities are those that can be fully evaluated prior to purchase, such as a pair of jeans or a television set; experience qualities are those that must be first purchased and consumed, or experienced, such as a haircut, before evaluation can be made.
Credence qualities, on the other hand, are those that the consumer can never fully evaluate even after purchase and consumption - those whose outcomes are accepted on faith. This is due to the complexity of the service being rendered; lay people do not have the training or knowledge to effectively judge how well a service has been performed. As services become more difficult to evaluate, there tends to be more uncertainty, or from the consumer point of view, more risk.
Insurance brokering is a credence-based service. For many customers, it is almost impossible to tell if a broker has done a good job, especially for the given price. In the commercial realm, risk managers at larger organizations may have some background in insurance and determining risk. More often than not, however, they are industry experts, not insurance experts.
As such, risk managers and business owners alike are left to rely on their insurance brokers as the experts in determining their needs. This places the purchaser of insurance in a position of vulnerability.
What is Trust?
In the relationship marketing literature, trust is defined as a "willingness to rely on an exchange partner in whom one has confidence. "Trust is a multi-faceted construct, comprised of three factors: ability, reliability and benevolence.
• Ability - This is defined as the level of competency in completing a task or job. In terms of insureds, ability refers to the expectation that a job (providing insurance consultation) will be completed to the highest possible standard.
• Reliability - This is being able to consistently and repeatedly complete a task. Reliability is the expectation that a consumer will consistently receive the same level of service, visit after visit.
• Benevolence - Perhaps the most overlooked aspect of trust, benevolence is the act of placing the needs of customers first; to look out for the well-being of the other party involved in a transaction. Although inherent in an exchange is benefit to both parties, benevolence is making customers feel as though their best interests are top of mind.
Mistrust in Insurance
There is a high degree of perceived vulnerability because of a lack of knowledge. Greater uncertainty leads to a greater degree of risk, which, in turn, invokes feelings of vulnerability. Though not exhaustive, the following factors may contribute to feelings of mistrust towards the insurance industry.
• Lack of insurance knowledge - As noted earlier, insurance, especially commercial insurance, is a complex service that few understand. It is a credence-based service that is not easily evaluated by insureds. And a lack of commercial insurance knowledge can produce feelings of uncertainty and, perhaps, anxiety. This may lead to feelings of mistrust, especially when there is a lack of communication and transparency.
• Lack of transparency - How are prices calculated? How much commission is being paid? Are brokers tied to an insurance company or not? Do insurance companies own brokers? Why are certain coverages selected? Why are certain markets chosen? When clients are given proposals, the answers to all of these questions go through a prospect's mind. A lack of transparency - from pricing calculations to compensation and contingency payments - may create feelings of mistrust since insureds may not be aware of how such things are handled.
• Fluctuations in pricing - Hard and soft markets; premium increases and decreases. It may be difficult for insureds to understand inconsistent premium pricing and insurance policy pricing behaviour particularly, in the case of the latter, if the underlying risk remains the same. Added to a lack of both transparency and understanding, price fluctuations can trigger feelings of systemic mistrust.
• High degree of vulnerability - Unless the insured is an expert in insurance, a certain degree of vulnerability will exist. This arises from the asymmetric relationship that exists between insured and broker, as it is assumed the broker has greater knowledge of insurance. If insureds fear opportunism, this fear may lead to feelings of mistrust.
• Perceived lack of benevolence - This is an interesting one. As indicated in the TEAMmakers inc. report, consumers feel as though brokers are not as benevolent as they could be. That is, when presented with an opportunity, brokers may look to put their own interests first. This is most often not true, but the perception in the consumers' mind is strong enough to make consumers feel guarded. Trust is an essential component to any relationship. This is especially true of the relationship that forms between brokers and insureds. That said, trust must be earned, and it is built over time.
A deeper understanding of how trust is developed may help to bridge the gap between mistrust and trust.