Sticky’s 2021 predictions in the finance industry
The Sticky financial service team share their predictions for the year ahead – from gamified banking, to data-led personalised insurance and the strategic recovery of our travel insurance sector.
The global pandemic has had huge impacts on all sectors, and financial services is far from an exception. Over the course of 2020, banks, building societies and insurers have been forced to rethink not only the services they offer, but how they are provided, responding quickly and definitively in order to support businesses, investors and individuals in navigating the fast-changing landscape.
As we move into 2021, the challenges faced by the financial sector are far from over, but along with these challenges comes a new wealth of opportunity to diversify for the future.
Here are some of our predictions for the year ahead.
The Sticky financial service team share their predictions for the year ahead – from gamified banking, to data-led personalised insurance and the strategic recovery of our travel insurance sector.
Insurance – will loyalty finally begin to pay off in 2021?
For years, loyal insurance customers have been paying far more for their insurance than they need to, with a combination of inertia auto-renewal leaving many consumers – around 6 million, as estimated by the Financial Conduct Authority (FCA) – out of pocket. Indeed, one driver we know of had a standard increase of £300 for customers after auto-renewal.
For home and car insurance, those who shop around have been lured away with cheap deals to switch provider, while those simply renewing with the same insurer have seen their premiums go up year after year – partly because pay-outs become more expensive and partly because insurers have to support all those cheap deals for new customers.
But 2021 will see things beginning to change. The FCA wants to stop insurers penalising loyalty. It proposed that “when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider through the same sales channel.” After the consultation on its proposals ends in late January 2021, the FCA will publish finalised rules for what’s expected on pricing based on its proposals. So if you are a continual switcher, you’ll find prices going up, and if you are loyal, you might find that prices don’t rise as fast. But despite what the FCA says about its plans encouraging more competition, we’re not expecting prices to go down anytime soon.
And it’s not just pricing that’s getting a shake up. The FCA has also published new restriction around value-measured data on claims frequencies and acceptance rates, as well as on average claims pay-outs and claims complaints across all general insurance products. Finally, customers will be able to evaluate more clearly which insurer they might be better off with.
But if insurers are playing by the same rules, what will this mean in practice? We’d predict – or maybe it is just hope – that insurers will begin to look after existing customers better. Perhaps a provider or two will begin to offer loyalty discounts and other perks for existing customers since they won’t all be in the same race for the same switchers. Hopefully it will make customer service ever more important and that it drives improvements all round as insurers look to hang on to their existing customers.
And going along with this, we predict that price comparison websites will become more sophisticated, comparing more than just price. The quality of cover and service will begin to play a much bigger part in how insurers and their policies are ranked, resulting in an even-more useful service for their customers.
Banking – A major bank will lead the way with gamified banking for children 4-16
Children have become a vocal part of household decision-making. Whether it’s where you go on holiday, or what brand of air fryer to buy, children not only have a say – they have a vote. Their involvement with household spend has necessitated them to understand and appreciate the value of money.
In addition, Generation Alpha (born in the early 2010s) is exposed to fundamental concepts of financial transactional behaviour on a regular basis. It’s commonplace for games such as Fortnite to require the spend of a game-specific currency (bought with ‘IRL’ money) to acquire better skins, weapons or other enhancements. As a result, even children below the age of ten are now developing an intuitive understanding of what’s involved in value propositions, as they weigh up in-game costs against benefits. Of course, they then have to acquire the money to invest in the game – cue flexing their entrepreneurial muscles. Where before children may only have been faced with such weighty financial decisions on birthdays and holidays, or perhaps monthly when they receive their pocket money, it’s now a daily or even hourly occurrence depending on how much screen time they’re allowed. Talk about a crash course in finance – and a far cry from the days of learning about money through Monopoly.
If all this wasn’t pushing children onto the financial ladder quickly enough, they’re also bearing witness to a unique financial moment that’s impacting not just spend, but our cultural and societal landscape at large. The financial effects of Covid-19 on households globally are giving children a sudden jolt into the realities of job insecurities and redundancies, budget cuts and financial upheaval – plus the emotional consequences that go in hand.
Where children may previously have had a say in going to Lanzarote rather than Paris, it’s now a case of holidays cancelled – and more fundamental spending decisions the topic of conversation. Children might find themselves booted out of their assumed seat at the financial decision-making table very quickly, as more urgent priorities need to be addressed.
Against this landscape, it’s fair to say that Generation Alpha may grow up to be those who most urgently strive for true financial independence, with a powerful and intuitive understanding of the precise value proposition embedded in financial wealth as a whole. They’re likely to be the generation that shrugs off frivolous spending with far greater nonchalance and confidence than the rest of us. And they’ll have a shrewd insight into what wealth, comfort and security really mean – beyond what’s in the bank.
There is therefore a real need to support that financial savviness with an account that promotes financial education and provides the mechanisms with which children can take real ownership of their money.
Several apps have launched in recent years. Possibly the most popular, gohenry, was launched in 2007. Most child-focused apps make the process of pocket money far simpler, and can also show a list of chores that have been completed. Some, like Rooster Money, help children to set targets, even allowing pictures to be downloaded against each aim so as to visibly reflect what it is they’re saving for. Given the inclination of young minds to lose focus and drive, this is a great feature.
However, major banks have lagged significantly in the race to seize the imagination and loyalty of this increasingly relevant customer base. Major banks tout features such as personalised bank cards, contactless payments and interest rates. How is this relevant to children? How does it empower them? Surely, a child’s bank account can combine both style and substance without dragging in the doldrums of adult accounts. In fact, developing bank accounts for young children may well reveal features that are just as sought after by adults.
Major banks must catch up on tailoring their accounts to children. Gamification, personalisation, easy and accessible interfaces in specially designed apps, and promotion of financial education through rewards and lessons will result in an empowered and savvy generation who repay their bank through loyalty in their adult years. And with some exciting child-focused apps already in the market, there’s no excuse for a lack of inspiration.
Insurance – is dynamic pricing the answer for travel insurance in 2021?
It’s no shock to say that 2020 has been a disaster for the travel industry, and by extension for travel insurance providers.
The light at the end of the tunnel may be the pent-up demand. Surveys just before New Year found that up to 40% of Britons planned to go abroad in 2021. But with wildly different global vaccination rates, possible regional flare-ups and personal behaviour a big driver of risk, how will insurers price their policies when Covid rates and restrictions are changing daily?
For example, a traveller may fly from London to Spain and spend the week reading a book on a quiet beach, staying in a self-catering apartment and not going out in the evening. Or they could be out hitting the pubs and clubs in the busiest part of the Costa del Sol. The cost to the insurer of a serious Covid case could be significant, so how can they price the risk fairly?
We believe the answer lies in data, tracking and flexibility, for both the insurer and the traveller.
People are becoming more used to sharing their data. Insurers already offer telematics for motor insurance and a significant proportion of the population have the NHS Covid-tracking app. We anticipate that at least one insurer will draw on this to introduce behaviour-based pricing. They will offer a range of prices and then the individual’s behaviour will influence the final price – just like with car black box policies. If the insurer can track them and see that they are exhibiting low-risk behaviour, then they will be rebated the difference.
This exchange of data by the insured to the insurer in return for cost-savings we believe to be the future of the industry. Traditional insurers are not loved, only the AA has more than a 50% approval rating with YouGov, and most are well below 20%. Those that can’t or won’t use data to offer better prices and user experience will perish.
Insurance Comms to become properly data-led, personalised and relevant at last
Insurers have been segmenting their audiences and sending them what they consider to be relevant information for almost as long as they have been operating. The vast majority of which will have been completely ignored for being impersonal, irrelevant, untimely or all three. I’ve been keeping track and in the last month have received four emails from current or previous insurers – all for needs I have never once required.
The explosion in data and data usage means that insurers can know a lot more about their customers and to use it to their advantage. Many have already started to this through the likes of automated switching, reminder messages, improved pricing and fraud detection.
The sector also faces new entrants, seeking to disrupt the market. Tesla is expected to launch “a major insurance company” using data from its electric cars. In Hong Kong, online-only insurer Bowtie targets young, digitally savvy consumers and in the UK, bike insurer Laka doesn’t charge premiums but is organised as a collective.
Against this background, traditional insurers need to make themselves stand out as consumer partners, making their lives easier by protecting them from misfortune and helping them quickly and easily if they are unlucky.
And in 2021, we believe that at least one traditional insurer will take a big step forward by using their customer data, augmenting it with other data sets to improve their communications, reduce their client’s risk and save them money.
For example, WeDoInsurance.com know that their client Mrs Brown lives in Northumbria in a house with a drive and garage, has just bought a new Range Rover and is a keen Facebooker. They also have access to publicly available data that there is major hailstorm hitting her region this weekend. They send her a direct message suggesting she put her new £100,000 car under cover on Friday night otherwise a cracked windscreen could cost her the £200 excess on her account.
This useful, targeted communication would increase brand engagement and trust and allow opportunity to upsell to a more interested and receptive audience, whilst competing against the Insurtech brands entering the market.
There is no doubt that many forecasts from the beginning of 2020 fell by the wayside. However, with the full trajectory of the pandemic and its financial implications finally coming into focus, we may now be in a position to look ahead at what will surely be a very different sector come the end of the year.
