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What Happens if U.K. Exits the E.U.?

On June 23, 2016, the U.K. population will vote on whether to stay a part of the E.U.’s 28 countries or to leave. It’s a once-in-a-generation decision, and it is likely to dominate U.K. press for the next six months. But what impact would a British exit, or “Brexit.” have on the insurance industry?

A report by Euler Hermes, a consultancy backed by Allianz, indicates this exit would include:

  • Massive loss of U.K. exports, which could take 10 years to recover
  • A heavy hit to financial services
  • London’s loss of its supremacy as a financial center
  • The likelihood that trade barriers would be imposed by continental Europe

Global insurers would inevitably be affected. Zurich Financial Services says it is “monitoring developments carefully.” The AXA chief executive described the situation as the U.K. “playing Russian roulette” and predicted a severe negative impact on London. Moody’s says the U.K.’s credit rating would be hurt.

Despite the recent challenges of Solvency 2, the argument that there will be less regulation if the U.K. leaves the E.U. doesn’t hold weight with Lloyd’s of London, whose Chief Risk Officer Sean McGovern recently said, “None of the alternatives will be as beneficial for the London market as the current relationship.”

Companies are already indicating they will need to make stockholders aware of the consequences of leaving—if only to avoid directors and officers (D&O) claims down the line. Because most annual reports are published only months before the vote, there’s likely to be a swell of activity; social media analytics measuring citizen sentiment will have a field day.

In October 2015, U.S. administrator Michael Froman ruled out a separate trade deal with the U.K. in the event that it leaves the European Union. He said, “We have no free trade agreement with the U.K., so it would be subject to the same tariffs—and other trade-related measures—as China, or Brazil or India.”

At face value, staying in the E.U. seems like an obvious choice, especially as the U.K. population—like the insurance industry—is risk averse and often reluctant to change. But there are other issues at play here, especially those regarding the emotional response.

Some are suggesting that London would be at greater risk of terrorism if the U.K. remains part of the E.U. Others are concerned about the immigration issue and the effect of the Euro crisis. Others simply argue that that the U.K—which has the fifth-largest economy in the world, is the fourth-greatest military power, is a leading member of the G7, has more Nobel Prizes than any other European country and is one of only five permanent members on the U.N. Security Council—is entitled to greater autonomy to make its own decisions and should not be constrained by politicians who are not elected by U.K. citizens.

“After all,” say those in favor of an “out” vote, “isn’t the current safety and prosperity enjoyed by the U.S., Australia, India, Canada and others founded on the principles of democratic self-government created by those who were once prepared to take matters into their own hands?”

Luckily, even with an “out” vote, the exiting process won’t happen overnight. There will be processes to follow, some of which could take years. It’ll give plenty of time for insurers and intermediaries, (not just those in the U.K. or Europe) to think carefully about the consequences on their businesses, the economy and their customers.

Here are some issues that would have to be considered:

  • As London reduces its influence and there is a brain drain, where might the power shift to, physically, and will some of the big broking houses move house (again)? Where will the new powerhouse occur? Singapore or Shanghai?
  • If there are new trade tariffs, how will this affect the flow of global business? According to U.K. government data, in 2011, the U.S. exported $3.5 billion of insurance services to the E.U.—that’s nearly $1 in every $4 in global insurance services exports.
  • How might an economic squeeze in the U.K. over the next decade affect consumer behavior in terms of buying both property and life insurance, and will this lead to further consolidation of an already saturated marketplace?

There is a basic insurance principle used to establish negligence that dates back more than 100 years. It refers to the “man on the Clapham Omnibus,” a hypothetical character epitomizing the “common man,” who is described as reasonably educated and intelligent but nondescript and against which a defendant’s conduct is measured.

So, on June 23, 2016, everyone in the U.K. over the age of 18 will get to vote regardless of their expertise on the topic. On that day. it will not just be a matter for the entire U.K. population but for the “man on the Clapham Omnibus.” At this moment, we can only speculate whether his head will rule his heart, or vice versa.

Is Usage-Based Insurance a Bubble?

In May 2015, the British Insurance Brokers Association (BIBA) released research showing the figures of usage-based insurance (UBI) in the UK. The research showed that the number of live UBI policies is just under 323,000, which represents only 9% growth from 296,000 UBI policies in December 2013. That figure is well down from the annual growth in 2013 of 64%, and of 80% in 2012. The decline could be understood if the market had reached its apogee, but the market is far from that. Another piece of research shows that the penetration rate of UBI in the UK is only 3% of the total.

The UK is considered to be a mature market for UBI, and the figures in other mature countries are not different. In other countries, even in most developed Western European countries such as Germany, Netherlands, Belgium, Austria and Scandinavia, the penetration of UBI is much lower.

If one can measure risk factors — certain road types, road environment, time of the day, days of the week and driver behavior– it is possible to assess high risks. Telematics enables insurers to assess their risk much better than the traditional proxies, and we could expect much higher adoption of insurance telematics.

So, why it is not the case? Why hasn’t UBI fulfilled the expectations?

UBI BENEFITS

So much has been spoken and presented in telematics conferences about the benefits and value of UBI for both the consumers and the insurers. Just to mention a few:

For the insurance company:

  1. Better assessment of the risk, enabling appropriate pricing
  2. Self-selection of “good” drivers
  3. Attracting safe drivers from the competitors
  4. Developing and strengthening direct relationship between the insurer and its customers
  5. Lowering the risk by advising the customer to drive safer

For the insurant:

  1. Discounted premium (for “good” drivers)
  2. Safer driving
  3. Geo-fencing tools and young-driver monitoring

Let’s examine honestly –

  • Do the above benefits “work” in reality?
  • Does UBI provide enough value to the customer to attract her to be connected and give up privacy?
  • Does UBI provide enough value to the insurer and justify the high investment?

We have to admit that the answer to all those questions is “No.” In other words, it seems that the current business model of UBI is wrong. Neither the insurant nor the insurer gets enough value to make UBI mainstream and a success story.

Let’s imagine a utopian scenario, where 100% of the customers agree to be “connected.” Could the insurer monetize that connection? Could the insurer return the investment it made in telematics (capital expenditures and operating expenses)? The answer is probably “No.” As long as the insurer has to encourage “good” drivers through premium discounts, and is unable to reject or levy a surcharge on “bad” drivers, the insurer cannot see the ROI. We heard voices from several insurers about surcharges for risky drivers, but it doesn’t work in reality. Those customers will simply churn to the competition.

As for the customer, discounted premium was not proven to be strong enough to “connect” customers and get them to give up their privacy.

IS UBI A BUBBLE?

The above draws a gloomy picture. However, the fact is that we see more and more conferences around UBI and new vendors joining the game. Is it a bubble that is about to explode?

Not necessarily, but there is a need for a radical change in the business model.

The connected car is much more than UBI. Therefore, the existing model where the insurer collects the driving data, owns it and uses it for insurance purposes only (underwriting, marketing and claims management) is completely wrong. The insurer cannot see the entire picture of connected car services, and, honestly, most of the insurers are not interested in more than insurance.

So, what is the right way to make the connected car a success story, and UBI part of that success?

KEEPING THE CUSTOMER ENGAGED

To encourage dolphins to do their show, you must feed them with fish continuously. The same is with customers – if you’ll pardon the analogy. You must keep them engaged and provide them monetary value on a daily basis, so they will be intrigued enough to be “connected.” A very good example is the “rewarding” method of Wejo, where a customer collects miles and good scoring and can redeem it for free coffee, car wash, etc. When a customer feels that he gets real value, he is more likely to give up privacy.

UBI AS PART OF A BROADER SUIT OF TELEMATICS SERVICES

Insurers that offer additional services, such as roadside assistance and extended car warranty, can use the telematics device in those services. In that case, insurers can either cover the costs by the customer or spread the cost over the several uses and justify the investment.

A WINNING ECOSYSTEM

As mentioned above, insurance companies cannot see the entire connected car picture and therefore are not the ideal entity to collect and own the driving data. Moreover, as long as they cannot reject or levy a surcharge on “bad” drivers, why would insurance companies fund telematics (devices, connectivity, device management, data analytics) for those customers, if they can purchase a database of “good” drivers from a third party?

Therefore, we can expect in the near future to see the rise of telematics facilitators/aggregators that will collect data from the vehicle and own it, providing value and engagement to the customer and forming a winning ecosystem of multiple players that can benefit from telematics data and insight. Once they have a mass amount of data, they will be able to driver behavior analytics and monetize it for insurance companies.

What will be the profile of such facilitators/aggregators? Obviously, OEMs can play this role for embedded OEM devices. In the aftermarket telematics, we already see some cellular operators that are heavily involved in the connected car space, and we can expect more to come. Other optional players may be existing TSPs and UBI vendors that will see the potential in a multi-player game, as well as new entrepreneurs.

The bottom line is that UBI is here to stay, but its business model will radically change.

The Dangers of Public Segmentations

Recently, it seems that developing public segmentations of your customers or citizens and then sharing it for all to see is becoming fashionable.

In part, this is to be applauded and welcomed.,/p>

The trend highlights a key tool within the customer insight toolkit, encourages greater focus on understanding people and embraces the need for greater transparency. However, there is also an inherent risk, that readers fail to understand the purpose, design and limitations of such segmentations and thus unwittingly apply them where they will not help.

This reminds me of a time many years ago when psychometric segmentations were very popular in business circles. Myers Briggs (MBTI) and many other profiles were enthusiastically applied and team members categorized into their “type.” Sadly, all too often, this perception about some important differences between team members was filed away following the team-building exercise and never used again. Screening interview candidates via psychometric segments was also “flavor of the month” at one stage, although I hear it being much more rarely used now (or only as part of a mix of “facts” to be considered).

Perhaps part of the problem can be a misunderstanding of the role of segmentation. As posted previously, segmentation is just one of a number of statistical tools available, and each segmentation will be designed to achieve a particular purpose. For this reason, more than one segmentation of customers may be entirely appropriate and insightful for a business that is able to handle such complexity (though most business leaders dislike this idea).

But let’s return to reviewing some of those recently published public segmentations. The first one I want to consider is the Consumer Spotlight segmentation published by the FCA.

While this appears a useful segmentation to help the FCA understand and focus on more vulnerable segmentation with regard to financial understanding or access, it is also important to recognize its limitations. A 10-segment model will only ever be appropriate for understand macro attitudes and behaviors. My own experience of segmenting consumers within different product markets tells me that both attitudes and behaviors can vary widely once you drill down to specific needs or products. So, it’s important to realize that this segmentation has been designed to focus on dimensions like vulnerability, detriment and financial risk. Thus it is most relevant for the FCA itself, to help target communications.

A second example is a commercial business taking such a public approach to sharing a segmentation. It is the Centre for the Modern Family segmentation funded by Scottish Widows.

This is another interesting segmentation, as it seeks to highlight and track changing social attitudes, family structures and pressures on modern families of many different types. However, once again it is important to realize the limitations of this survey. It is an attitudinal segmentation, constructed from a combination of “qual and quant” survey results, interpreted by an expert panel drawn from academia, social care and commerce. As such, this is a subjective perspective evidenced by self-reported attitudes and behaviors. Although such an understanding can be very rich, the inability to overlay this segmentation onto customer databases means that actual behavior cannot be verified or targeted actions or communications executed (often a drawback of attitudinal segments).

My final example is from the UK government. There are two I could have chosen here, as they have also recently published a segmentation on “climate change and transport choices,” but I’ve chosen to highlight the segmentation exercise published in regard to the problem of digital exclusion.

Once again, it’s encouraging to see this segmentation exercise being undertaken and the transparency regarding approach and progress. However, it does also appear to run the risk of a number of other “hybrid segmentations.” That is the risk that certain differences highlighted in various research studies or other sources are “cherry picked” to construct a patchwork quilt of apparently rich understanding that is not evidenced on a consistent basis. This can be seen in the infographic embedded in the above article. Even constructing a behavioral/demographic framework for a segmentation on that basis and then consistently surveying each segment runs the risk of masking important differences because of the averaging effect of artificially constructed segments. It will be interesting to see how government advisers and agencies avoid those risks.

I hope you found that interesting and are also engaged with the level of focus on segmentation in today’s government and media. If these are approached carefully and interpreted appropriately, they should be another driver of greater influence and seniority for customer insight leaders. That is our cause celebre.

Booze, Birds, Fast Cars—and New Priorities for Marketing

I was intrigued if not slightly jealous about the results of a survey of the 3,000 new millionaires from the UK Lottery, and how they spent their money. Among other things, they spent £463 million ($740 million) on new cars, which equates to £155,000  ($249,000) a person. That’s a lot of new metal. I do hope they bought insurance, as well.

Receiving unexpected money can be a pleasurable challenge, and a similar question was asked of UK marketing professionals. According to a recent survey into marketing confidence, conducted by the Chartered Institute of Marketing in the UK, most marketers would use additional funding like this:

  • 19% — Run a new campaign or idea
  • 18% — Invest in brand building 
  • 17% — Increase headcount
  • 13% — Investment in research and insight
  • 12% — Invest in analytics
  • 10% — Develop skills
  • 10% — Top up existing campaigns
  • 1% — Other stuff

I wondered if the questionnaire could have been worded differently. Had it provided the option to “invest in your technology and people, so you have a deeper insight into your customers,” the results (from the same data, just regrouping three of the categories) might have been:

  • 35% — Invest in your technology and people to gain deeper customer insight
  • 19% — Run a new campaign
  • 18% — Invest in brand building
  • 17% — Increase headcount
  • 10% — Top up existing campaigns
  • 1% — Other stuff

Would better customer insight influence the decision for a new campaign or topping up of existing ones, or provide better insight into consumer sentiment? Certainly the evidence is that effective use of analytics optimizes the marketing process, and an ROI isn’t difficult to find. 

All this seems to point to a new generation of marketers that is emerging – marketing professionals who are customer-, segment-, channel- and technology-savvy. These marketing professionals embrace technology as the key enabler, rather than feel threatened by it, and are the ones most likely to put more funding into technology and people development, rather than doing more of the “old stuff.”    

In the current economic climate, where cost-cutting is prevalent and having additional budget is a rarity, it’s critical that current funds are used effectively. How insurance marketing organizations prioritize their spending is increasingly a critical success factor.

Establishing the right priority is always a challenge, especially where there are multiple stakeholders.

Jerry McGuire simply said, “Show me the money,” reminding us all of the need for a solid benefit case. 

George Best, Manchester United and Irish international soccer player, had his own particular view on life and priorities: 

“I spent a lot of money on booze, birds and fast cars. The rest I just squandered.”

The Fallout From Ill-Advised Tweets

During the presidential debate on Oct. 3, 2012, a KitchenAid employee used the corporate account to send a tasteless (some would say disparaging and grossly offensive) tweet regarding the president’s grandmother. KitchenAid quickly apologized to the president and his family and explained what happened. In other words, KitchenAid followed the “rules” of reactive reputation management.  

KitchenAid was praised for responding quickly. But the outrage about the tweet was overwhelming, if only for a short period, and underscores that companies need to consider their potential liability from ill-advised tweets.

A bit of background: Libel (written) and slander (spoken), collectively known as “defamation,” which is the general term used internationally, are civil wrongs (sometimes carrying criminal penalties) that harm a reputation, decrease respect, regard or confidence or induce disparaging, hostile or disagreeable opinions or feelings against an individual or entity. If the allegedly defamatory assertion is an expression of opinion rather than a statement of fact, defamation claims usually cannot be brought because opinions are inherently not falsifiable. However, some jurisdictions decline to recognize any legal distinction between fact and opinion. 

Contrary to a general belief that insulting tweets (or comments online through Facebook, online message boards, etc.)  are exempt from libel laws because they are fleeting, libel laws apply to the Internet the same way they do to newspapers, magazines, books, films, etc. The same technology that gives you the power to share your opinion with thousands of people also qualifies you to be a defendant in a lawsuit.    

In considering your legal exposure if an employee may have committed libel, you must consider the country you live in, as well as your exposure to libel laws around the world.

U.S.

The medium for communication is irrelevant; even an email to a single person can be libelous if the sender knew a statement to be false, acted with reckless disregard for the facts or was otherwise irresponsible. To be libelous, the statement must also cause some damage.

United Kingdom 

The basis of British libel law is not substantially different from that in the U.S.: to protect the reputation of an individual from unjustified attack. In British law, a person is defamed if statements in a publication expose a person to hatred or ridicule, cause a person to be shunned, lower a person in the estimation in the minds of “right-thinking” members of society or disparage a person in his work. In the U.K, though, the burden of proof is with the defendant, while in the U.S. the plaintiff must provide the proof. Unlike in the U.S., there is also no provision in the U.K. that makes it harder for public figures to win a judgment–in the U.K., a public figure does not have to prove a statement was made with malice.

Almost all of the rest of the world

There is ever-expanding concern about the use of social media, especially Twitter, to post harassing, offensive and false statements that are defaming or invade another’s privacy. As one judge said: “Twitter as we all know is widely used by individuals and organizations to disseminate and receive information. It is inconceivable that grossly offensive, indecent, obscene or menacing messages sent in this way would not be potentially unlawful.” ([2012] EWHC 2157 (Admin) at {23}. In India, amendments to the Information Technology Act, 2000 (IT ACT) specify that defamation via a computer or communication can lead to a prison term of three years and a fine. (The United Nations Commission on Human Rights ruled in 2012 that the criminalization of libel violates the right to freedom of expression and  is inconsistent with Article 19 of the International Covenant on Civil and Political Rights. The impact of this ruling, if any, is not part of the discussion in this article.) 

Now, let’s consider liability if you or an employee is the “retweeter”:

U.S.

If you retweet a libelous statement in the U.S., you or the company you work for  may be protected from defamation liability based on Section 230 of the Communications Decency Act, which states, “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Simply put, this means you cannot be sued for something you retweet, even if the original tweet is libelous, so long as the libelous content was created by a third party. However, if you did have control (it was KitchenAid’s corporate Twitter account)  or you add something defamatory, you could be held responsible. 

United Kingdom

Keir Starmer QC was addressing the London School of Economics about social media in 2012 when he was asked: “Is it an offense to retweet something grossly offensive?” He replied: “You retweet, you commit an offense under the Act.”

The “Act” is the Communications Act, which outlaws sending a tweet that is “grossly offensive or of an indecent, obscene or menacing character.” A person can be prosecuted if he “causes any such message or matter to be so sent.”

For example: In 2012, the British Broadcasting Corporation settled a libel suit for about $300,000 with a UK politician. (The BBC reported that he was involved in a child sex abuse scandal but should have known the statement was false.) The UK politician then sought libel damages from at least 20 “high profile” people who tweeted and retweeted the report. 

Because tweets cross borders so easily, Twitter users in the U.S. and elsewhere should take the UK law into account.

India

Some legal scholars in India say that even accidentally retweeting an offensive tweet can create liability.

Freedom of Speech?

While freedom of speech in the U.S. is a constitutional right, legal exceptions make that right limited. For example: Speech that involves incitement, false statements of fact, obscenity, child pornography, threats and speech owned by others are all completely exempt from First Amendment protections. The U.S. Supreme Court has ruled that the First Amendment does not require recognition of a privilege for those stating opinions. Therefore, the  position that nothing should stand in the way of unabashed free speech on the Internet is like the ostrich with its head in the sand. Defamation and speech intended to inflict severe emotional distress is not protected.States can and do regulate this type of speech.

So here is the takeaway:

If you or an employee tweets or retweets something defamatory, you may face a libel claim. It doesn't matter how quickly you delete the entry or whether you follow up with a correction or an apology. It also doesn't matter where in the world you are.

Disclaimer: The information contained in this article is provided only as general information and may or may not reflect the most current developments legal or otherwise pertaining to the subject matter hereof. Accordingly, this information is not promised or guaranteed to be correct or complete, and is not intended to create, or constitute formation of an attorney-client relationship. The author expressly disclaims all liability in law or otherwise with respect to actions taken or not taken based on any or part of this article.