Mortgage advisors must be ready to give the right protection advice to borrowers, particularly over such topics as price walking, according to insurance expert Martin Schultheiss (pictured).
Price walking is when the cost of insurance rises every year for established customers while new customers pay lower prices. However, following the Financial Conduct Authority’s (FCA’s) new rules and the introduction of its Pricing Remedy in January, new and existing customers must be charged the same amount for their insurance upon renewal.
A recent study by the FCA found that as many as six million policyholders paid prices that were more than 50% above the average for policies with similar risk characteristics, revealing that the excess amount paid by these consumers totalled £1.2 billion.
The issue was highlighted last year by money expert Martin Lewis, who warned that the changes brought in by the FCA would not necessarily result in a price drop for existing customers.
Schultheiss, managing director at insurance fintech firm, Uinsure, confirmed that price walking “has been going on for years”.
“We see it all the time where customers are offered a really cheap price…and suddenly it’s 30% or 50% more expensive over three years,” he noted.
From an insurer’s perspective, the most important aspect was to make sure that advisors were getting “the most competitive new business price in like-for-like cover for that customer”.
Speaking to Mortgage Introducer and Insurance Business, he said that mortgage advisors had a duty of care to ensure that customers also had the right type of cover, regardless of the cost-of-living crisis and the rise in interest rates, as it was a legal requirement.
“(Insurance) is not necessarily impacted by the cost-of-living crisis…because you need to have it from a legal perspective. That being said, this is where the advice part is so critical, because customers do look at it,” he said.
“The reality is that this is the most amount of money they’re probably going to spend in their entire life…and things do go wrong. The second part of it is, can you make sure that the customer remains competitive at renewal?”
He cited his own company’s approach, which is to offer a single policy and “reverse engineer” it back to a panel of seven insurers to get the most competitive price up front. The customer’s status is then reviewed a year later by the panel to monitor the quality of service and confirm that they were offered the most competitive price.
Schultheiss said the challenge for the Manchester-based firm as well as other insurance companies is to ensure that advisors have the right tools to entice customers away from aggregation sites (more commonly known as comparison websites), which in his view can result in clients being underinsured.
“Typically, only one in five customers will have their home insurance provided to them by the advisor. The rest will go off to an aggregation site of some sorts at the other end.
“That’s because a typical advisor has to do a full advice process and populate somewhere between 50 and 60 questions. There are also many different types of policies, so advisors haven’t had the time or ability to learn all the different types of policies.”
The answer lay in simplifying the process by leveraging technology for both advisors and customers.
“You can get a binding quote from seven insurers in 20 seconds and buy the policy in 60 seconds. We’ve done that by using big data to take care of the 60 questions that a customer or broker would typically have to key in or ask - it’s really about driving simplicity into the whole home insurance process and intertwining it into a mortgage,” he said.
Despite stressing the importance of not being under insured, Schultheiss pointed out that once price walking was no longer a feature, there should be a “significant decrease” in price.
“And if you aren’t seeing a significant decrease, you should shop around,” he advised.
