Consent is a term rarely mentioned in insurance circles, yet it lies at the heart of every policy sold by insurance firms. It’s a feature of what I refer to as the changing landscape of insurance regulation and is something every insurance firm needs to be familiar with, not least because it offers a useful way of testing out the design of a product and its distribution.
Consent is an ethical issue associated with how insurance policies and services are sold. Here are two examples of how consent has made ‘insurance news’ in the past couple of years.
Firstly, Card Protection Plan is a classic example of consent and the mis-selling of insurance. There you had an insurer who taught its sales agents to override any objections from the customer, and who took renewal payments without the policyholder’s permission. After a huge fine, it’s now struggling for survival, a ghost of its former self.
Secondly, there’s the FCA’s report into the add-on insurance market. Their report highlighted the difficulties that were being placed in the way of consumers making informed decisions and is a signal to the market that levels of consent needed to be improved.
To test out how well their policy and its distribution have been designed, an insurance firm can turn to two important dimensions of consent.
The first dimension is that of explicit consent versus implicit consent. Explicit consent involves the consumer doing something to confirm their decision to you, while implicit consent has the insurance firm interpreting a decision from something the consumer did not do.
So, for example, an opt-out decision when buying an add-on policy (for example, by not ticking the box) represents implied consent, while an opt-in decision represents explicit consent (you’ve actually ticked a box that says you want to buy the policy).
The second dimension is that of specific consent versus generic consent. This is about what exactly the consumer is agreeing to and how much an insurer can read into that. A classic example of specific versus generic consent gone wrong was motor insurance and referral fees: insurers took the claimant’s generic consent to their claim being serviced and interpreted it into specific consent for the sale of their information to a third party. When policyholders found out, they didn’t like it.
I would recommend insurance firms taking the business plan for their product and using it to map out when consumers are making decisions about that product. With that map, you can then assess how those purchase decisions are being made against those two dimensions of consent. This allows you ask questions such as ‘is the consent explicit enough?’, and ‘can I do this based upon what the policyholder has agreed to?’.
It’s worth remembering that the FCA has laid some quite clear views on consent before the market. Their add-on insurance study confirmed that implied consent is no longer good enough when selling an insurance policy. There has to be explicit consent when an insurance policy is being purchased. Insurance firms will need to understand the level of explicit consent associated with the product and be able to demonstrate to the regulator that it is adequate.
Duncan has been researching and writing about ethics in insurance for over 20 years. As a Chartered Insurance Practitioner, he combines market knowledge with a strong and independent radar on ethics.
