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Trust looms large on consumers’ radar

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In a consumer-dominated and connected world, it’s not just numbers and processes that drive financial strength, but also trust and respect.

Taylor Fry’s latest Radar report, an annual round-up of Australia’s general insurance landscape, shows the breakdown of trust between institutions and their customers is a central theme emerging from the Royal Commission on Misconduct in the Financial Services Industry.

And it says there’s no reason to expect that the issue will disappear any time soon.

“In this climate of change and intense scrutiny, trust between consumers, insurers and regulators is critical, and set to become increasingly important in the future,” the report says.

Changing social expectations mean people are no longer satisfied with businesses whose primary objective is generating a return for shareholders – they need to do more, and contribute to society more broadly.

Technology has empowered consumers, giving individuals a voice and facilitating greater choice.

Taylor Fry says the Australian Prudential Regulation Authority (APRA) is placing increasing importance on trust.

Capital adequacy, risk management and governance structures were the traditional means by which APRA ensured promises to customers were met. But now the regulator has zeroed in on the “equally important” issue of community trust.

“It is clear APRA now expects more,” the Taylor Fry report says.

It notes the rise of the term “social licence” as an expression of the relationship between institutions and their customers. Social licence must be earned and maintained, and is fundamental to ensuring the long-term financial health of institutions.

The report says trust also falls under the remit of the Australian Securities and Investments Commission (ASIC).

“There will inevitably be some regulatory overlap, because trust emanates from the entirety of an institution’s activities rather than conduct in a single area.

“However, it’s worth recognising that APRA and ASIC are approaching trust from different perspectives – APRA views trust as facilitating the delivery on financial promises, while ASIC sees it as a crucial element of overall market fairness and efficiency.”

The report says profitability and sustainability are built on trust. Actions in the short term drive long-term value, and insurers would be wise to proceed with care.

“Above all, insurers must remember that trust takes years to earn and seconds to lose,” the report concludes.

Always on trend

Taylor Fry’s Radar report explores a series of insurance trends and ideas, drawing on statistics from the General Insurance Barometer survey released in conjunction with JP Morgan earlier in the year.

It features a review of last year, including how individual insurers fared, a study of the changing compulsory third party landscape and an assessment of cyber attacks and new data breach laws.

It includes a study of how insurers need to “think big and small” at the same time, and also reviews the Productivity Commission’s scathing draft report on competition within general insurance in Australia.

To access the full report, click here.