The consumer`s view of consumer protection: an empirical study of

Transcript

Pascal Bühler / Martin Eling / Peter Maas / Veselina Milanova
The consumer’s view of consumer
protection: an empirical study of the
Swiss insurance market
I·VW HSG Publications, vol. 57
The consumer’s view of consumer
protection: an empirical study of
the Swiss insurance market
Published by the
Institute of Insurance Economics of St. Gallen University, Switzerland
Acknowledgements
We would like to thank all those who contributed to this study, first
of all the numerous participants in the focus groups, the interviews
and the quantitative online survey whose assessments, suggestions and
creative ideas have considerably substantiated our results. The Swiss
Insurance Association has made a generous financial contribution to
the realisation of this study; moreover, its various bodies have acted as
important sparring partners throughout the research phase.
Publication details
The consumer’s view of consumer protection:
an empirical study of the Swiss insurance market
Published by the Institute of Insurance Economics of St. Gallen University, Switzerland
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Translation
Synopsis Wirtschaftskommunikation Anne Rüsing, Liestal, Rodney Heath, Munich, and
Joseph Butler, Munich
© Verlag Institut für Versicherungswirtschaft der Universität St. Gallen, St. Gallen 2016
(I·VW publications, vol. 57)
All rights reserved. Reprinting, reproduction or translation, in whole or in
part, is not permitted. This study is available in German, French and English.
The French- and English-language versions are provided for convenience only,
the German-language version is binding.
ISBN 978-3-7297-2002-2
4
Pascal Bühler, project manager and
postgraduate I∙VW-HSG
Master’s degree in accounting and finance
from the University of St. Gallen. Several
years’ work as a financial analyst and senior consultant in the finance industry. In his
current position, responsible for research
and consultation on digital transformation,
megatrends, business forecasting and
customer service excellence.
Prof. Dr. Martin Eling, Professor
ordinarius and Director I·VW-HSG
Studies and doctorate at Münster University, Germany. Tenure at the University of
St. Gallen, Switzerland. Before 2011 Professor for insurance at the University of
Ulm. Professor for insurance management
at the University of St. Gallen, Switzerland.
Research focus: New insurance markets,
new directions in asset management,
regulation, designing sustainable and viable
insurance systems.
Prof. Dr. Peter Maas, Member of the
Executive Board of the I∙VW-HSG
Banker by training. Studies in economics
and business psychology followed by a
doctorate at the University of Cologne,
Germany. Senior consultant at an international business consultancy. Professor
for service and insurance management at
the University of St. Gallen, Switzerland
Research focus: megatrends, strategic
management and marketing, cross-sector
market dynamics, (dis)intermediation,
customer value management.
Veselina Milanova, project manager
and postgraduate at the I∙VW-HSG
Master’s degree in international information management. Experience as a user
experience designer and design thinking
consultant in the telecommunications and
IT industries. Currently completing her
doctorate at the I VW and working as
a design thinking coach. Research focus:
customer experience, telematics and
sharing economy business models.
Contents
Management Summary
8
Tables11
Figures12
1 The significance of the consumer’s view of
consumer protection
14
2
Consumer protection in the insurance industry
2.1 Necessity, goals and requirements
2.2 Statutory foundations and latest developments
2.3 Research results on effectiveness and efficiency
18
20
28
33
3
Empirical study: The consumer’s view of consumer
protection
3.1 Objective of the study
3.2Methodology
42
43
45
4 The
4.1
4.2
4.3
4.4
4.5
5
consumer’s view of the insurance market
How interested are consumers in insurance?
What do consumers know about insurance?
How do consumers gather information in the
insurance market?
How do consumers choose their insurance?
How do consumers view the relationship with
their insurance provider?
Customer typology
5.1 Development methodology
5.2 One consumer – three faces?
5.3Delegators
5.4Pragmatists
5.5 Autonomous decision-makers
65
72
76
82
84
86
90
94
97
6The consumer’s view of regulatory consumer
protection measures 6.1 Right of cancellation
6.2 Right of termination
6.3 Pre-contractual information requirements
6.4 Pre-contractual disclosure requirements
6.5 Ombud system
6
52
55
59
102
106
110
112
116
120
Implications and recommendations for action
126
7.1Personal responsibility vs. regulation – striking a
balance131
7.2 Customer information – less is more
134
7.3 A need for greater insurance literacy and more
detailed customer knowledge
137
7.4 Recommendations for action
140
Appendices145
References167
Management Summary
Many parties are involved in the current political discussions (e.g.
FIDLEG, revision of the Insurance Contracts Act (VVG)) revolving
around how buyers of insurance products can be protected in an effective and efficient manner. However, the group of stakeholders at the
centre of these discussions has hardly been analysed at all. What do the
consumers themselves think of consumer protection? What protection
do they need and in what situations? Thus far, consumers have not
voiced any opinion on this subject. The present study attempts to fill
this gap by shedding light on the consumer’s view of consumer protection. With the aid of comprehensive, scientifically based empirical
research, the authors of the study are able to draw robust conclusions
that are representative for Switzerland as a whole.
Consumer protection can be broken down into measures taken to improve consumer’s four basic rights, namely the right to safety/security,
the right to be (fully) informed, the right to be heard, and the right to
choose. These can be traced back to the Consumer Bill of Rights propounded by John F. Kennedy in 1962. Where does the Swiss insurance
industry stand when it comes to these four basic rights?
–The right to safety/security is provided for by means of strict,
internationally recognised solvency regulations (as embodied in the
Swiss Solvency Test) as well as further security mechanisms. Both in
international terms, and compared with other industries, consumers
are very well protected. No additional action is called for.
–The right to be (fully) informed is the subject of current reform
projects, such as revision of the Insurance Contracts Act (VVG) and
drafting of the Financial Services Act (FIDLEG). Our survey reveals
a certain need for action as consumers are often out of their depth
and unaware of their rights. The majority of customers, for example,
would like insurers to be obliged to provide information – but in a
simple, standardised form – before any insurance contract is concluded. Accordingly, we recommend simplifying and standardizing
the information provided to customers as well as making use of
state-of-the-art media (e.g. digital coach).
–The right to be heard is covered in particular by the ombud system. In Switzerland, the latter is organized in line with international
standards and qualifies as effective and efficient. Of those surveyed
for the present study, 81% approve of the current ombud set-up,
namely a private-enterprise organisation financed by the provider.
We recommend retaining the system in its present form.
– Again and again in the study, the right to choose is called into
question. Measures taken to protect consumers generate costs,
which have to be borne by the owners of the insurance companies
and by the consumers themselves. This can result in restricted
insurance cover, e.g. when customers are unwilling to pay higher
8
premiums or when the insurance company owners are unwilling
to provide the required capital. This aspect should be taken into
consideration when putting in place any new measures, for instance
by analysing (ex ante and ex post) the effectiveness and efficiency of
such measures.
We back up these statements with the results of our consumer survey
and derive specific recommendations for action from these results. Over
and above this, two other results are worth mentioning.
– Consumers’ opinions are divided on the question of whether more
consumer protection is required. For example, 78% of those surveyed would prefer to have freedom of choice when it comes to the
term of their insurance policy, and consequently would be prepared
to sacrifice termination options. Therefore, caution should be the
watchword when extending consumer protection, and the costs and
benefits of any changes must be carefully weighed up. On average,
customers are less than willing to pay for additional consumer
protection.
– There is a considerable lack of knowledge among both providers
and consumers; 32% of the population have substantial gaps in
their basic financial literacy; and the deficits are even greater when
it comes to insurance. We recommend public and private initiatives to close these gaps (“Fit for Insurance”) so that customers can
gain a better understanding of risks and insurance matters and are
more able to make sound decisions. At the same time, providers of
insurance need to deepen their knowledge of what their customers’
want so as to be able to offer them products better tailored to their
requirements.
The study provides a varied picture of customers and develops a customer typology that divides the population into three categories: pragmatists (41% of those surveyed), autonomous decision-makers (36%)
and delegators (23%). For delegators, advisers (agents or brokers) play
a central role, and their quality is correspondingly important. Owing
to their passive approach to information-gathering, pragmatists would
probably be satisfied with a standardised form of customer information.
Autonomous decision-makers require less protection than the other
two groups.
Another contribution made by the study is to highlight blind spots in
the current political debate (such as enhancing insurance literacy) and
to provide specific input for the ongoing reform discussions (FIDLEG,
revision of VVG). Our recommendations for action are not restricted
to the insurance industry, but can be interpreted as a plea to all the
interest groups (companies, politicians, administrators, consumers and
consumer protection organisations).
Empirical basis
In order to gather the required information, data
collection was carried
out in three consecutive
phases:
(1) Seven focus groups
with a total of 58 participants in Zurich, St. Gallen
and Lausanne;
(2) 81 individual interviews across Switzerland;
(3) Online survey of
1,027 participants from
all over Switzerland.

List of tables:
Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table 16: Table 17: Table 18:
Costs and benefits of consumer protection
24
G20 high-level principles on financial consumer
protection (OECD, 2011) (OECD, 2011) 26
World Bank classification of financial consumer
protection (World Bank, 2014)
27
Statutory and constitutional provisions on consumer
protection that are of relevance for this study 29
Effectiveness of regulation
34
Studies on the side effects of regulation
38
Studies on the effectiveness and efficiency of
consumer protection in the finance industry
39
Socio-demographic comparison of the sample
with the Swiss populace
49
Top Ten empirical insights
129
Information overload in insurance (Germany;
after Wittrock, [2015])
135
Classification and requirements of consumer
protection in insurance (Lester, 2009;
World Bank, 2012)
145
IAIS Core Principles 2003 (incl. Preconditions
for Effective Insurance Supervision) update 146
Criteria for successful regulation according to
Skipper/Klein (2000)
148
Cross-country comparison: regulations on
consumer protection in the finance industry 149
Focus group “consumer protection”
151
Interview guidelines
152
Classification of various household types
according to income groups – income thresholds
155
Online survey (questionnaire)
156
List of figures:
Figure 1:
Figure 2:
Figure 3:
Figure 4:
Figure 5:
Figure 6:
Figure 7:
Figure 8:
Figure 9:
Figure 10:
Figure 11:
Figure 12:
Figure 13:
Figure 14:
Figure 15:
Figure 16:
Figure 17:
Figure 18:
Figure 19:
Figure 20:
Figure 21:
Figure 22:
Figure 23:
Figure 24:
Figure 25:
12
The three phases of the study
45
Distribution of focus group participants
by age and occupation, n=58
46
Distribution of interviewees by age and region,
% of those surveyed, n=81
48
Overview of the socio-demographic data from
the sample, % of those surveyed, n=1,027
50
Consumer involvement,
% of those surveyed, n=1,027
56
Autonomy preference between LID and HID,
57
Financial Literacy, % of those surveyed, n=979–990 62
Financial Literacy, % of those surveyed, n=707
63
Financial literacy in relation to various factors,
% of those surveyed n=979–990
64
Research effort according to phase of
customer journey, % of those surveyed, n=1,027
66
Events that activate consumers, by insurance line,
67
Sources of information when taking out insurance
(top access channels), % of those surveyed, n=1,027 68
Proportion of customers preferring online/offline
access in 2020 from the perspective of insurance
managers (Maas & Bühler, 2015)
69
Change in access channel between informationgathering and taking out insurance,
70
Relative significance of access channels in personal
lines business, % of those surveyed, n=1,027
71
Perceived control, % of those surveyed, n=1,027
74
Autonomy Preference, % of those surveyed, n=1,027 75
The position of customer advisers between
expectations and objectives
77
Reasons for not seeking advice,
78
Advice by product, % of those surveyed, n=628
78
Function of consultation, % of those surveyed,
n=62879
Quality of consultation, % of those surveyed,
n=62880
Fairness, % of those surveyed, n=836
81
Comparison of typology distribution with FSO
reference values
88
Comparison of the three consumer types, n=1,027 89
Figure 26: Sociodemographic description of delegators,
90
Figure 27: Sociodemographic description of pragmatists,
95
Figure 28: Sociodemographic description of autonomous
decision-makers, % of respondents, n=367
98
Figure 29: Assessment of the extent of current level of regulation
and willingness to pay for additional regulation
105
Figure 30: Right to cancellation, % of those surveyed,
n=1,027107
Figure 31: Attitude of the three consumer types towards
cancellation rights (D – delegators, P – pragmatists,
A – Autonomous decision-makers),
109
Figure 32: Right of termination % of those surveyed, n=1,027 111
Figure 33: Pre-contractual information Household
insurance, % of those surveyed, n=1,027
113
Figure 34: Pre-contractual information Life insurance,
114
Figure 35: Top 5 pre-contractual requirements
(by consumer type), n=1,027
115
Figure 36: Scenario without any causal nexus, n=1,027
118
Figure 37: Scenario with a causal nexus, % of those surveyed,
n=1,027118
Figure 38: Scenario without any causal nexus, % of
those surveyed, broken down into consumer
groups (A – autonomous decision-makers,
P – pragmatists, D – delegators), n=1,027
119
Figure 39: Scenario with a causal nexus, % of those
surveyed, broken down into consumer groups
(A – autonomous decision-makers, P – pragmatists,
D – delegators), n=1,027
120
Figure 40: Ombud office
122
Figure 41: The ombud office, % of those surveyed
by consumer group, n=1,027
124
Figure 42: Recommendations for action – structured in
accordance with the JFK Consumer Bill of Rights 143
The
1 significance of the
consumer’s view
on consumer protection
1
1 The significance of the consumer’s view on consumer protection
In recent years, insurance markets have become much more dynamic
and are now subject to changes similar to those gripping other industries. On the one hand, these fundamental change processes have
been triggered by economic parameters, such as the low-interest-rate
environment and excess liquidity. On the other, technological progress,
e.g. digitalisation, is impacting insurance, calling into question existing
business models on the supply side and bringing about changes in
attitudes and behaviour on the demand side. Another major driver
of change is regulatory activity, which has greatly intensified in recent
years (e.g. through the Solvency II regime), not least in response to the
global financial crisis.
Increasingly competitive dynamics in insurance markets, coupled
with the changing habits and lifestyles of customers, have led to more
differentiation as regards interaction channels and to greater variety in
the product range. New intermediaries have emerged in the marketplace and virtual access channels have expanded enormously. From the
vantage point of customers, the range of products has expanded, but
also the level of uncertainty when it comes to deciding which product
or service best meets their particular needs. As decisions of this kind
sometimes have far-reaching financial consequences, consumers need
either to examine more closely both their own risks and the services
on offer, or to rely on the advice of consultants. Conclusion: Among
consumers, the subjective feelings of vulnerability have increased.
At the same time, insurance providers have recently launched a number
of strategic initiatives to improve their customer focus. In order to set
themselves off better against their peers in an ever more competitive
environment, they have scaled up their investments in the support
and consultation they provide to clients during the decision-making
process as well as in the post-sales phase and its related services (e.g.
claims handling).
In this environment initiatives have been launched to regulate the finance market – such as the new Financial Services Act (FIDLEG) and
the revision of the Federal Act on Insurance Contracts Act (VVG) –
with the aim of improving consumer protection in the financial services
sector. In this context, the term “consumer protection” is understood to
mean not only the regulatory framework, but all the factors enabling
consumers to move freely within the market and granting them the
means to make informed decisions that are in tune with their needs.
As new statutory regulations not only generate new costs, which the
consumer must at least co-finance through taxes or higher premiums,
but also restrict the individual’s freedom to make decisions in the marketplace, it is necessary to design consumer protection in such a way
that it is effective, as efficient as possible, and does justice to the main
goal of the regulatory measures.
The studies available to date have examined various stakeholders’ views
of consumer protection. Surprisingly, none of these studies has taken
a systematic look at the perceptions of the consumers themselves (the
one exception being: Maas & Graf, 2006a). In order to create an
effective and efficient system of consumer protection, we first have to
understand how consumers move in the insurance marketplace and
what factors lead to a heightened sense of vulnerability.
This study aims to fill this gap by arriving at an understanding of how
consumers act in the insurance market, what need for protection their
actions give rise to, and what factors contribute to a heightened sense
of vulnerability. On the basis of a representative empirical study carried
out in Switzerland, the authors have compiled a detailed image of the
consumer, from which they derive a consumer protection strategy that
can be located between the opposing poles of “personal responsibility”
and “regulation”. Along a continuum ranging from “weakly regulated”
through “libertarian” to “strongly regulated, over-regulated”, the objective is ultimately to gain insights and elaborate guidelines that can be
used to create an effective and efficient system of consumer protection.
This study, too, is subject to certain limitations. Firstly, consumer
protection always has a national character, as legislation differs from
country to country and culture to culture, especially as regards the
relationship between the individual, on the one hand, and the state
and the industry, on the other (Maas & Graf, 2006b). That is why we
have focused on Switzerland. Secondly, we concentrate on the insurance market for private individuals; the conclusions drawn here cannot
simply be transposed to the insurance market for corporate customers.
It is plausible to assume that the need to protect customers in the B2B
segment is considerably less acute and that the relationship between
provider and customer in this segment is fundamentally different.
16
Our findings are divided into seven chapters:
– In chapter 1, we discuss the significance of the consumer’s view of
“consumer protection”.
– In chapter 2, we place consumer protection within its economic
and statutory context and, with reference to the literature, discuss
the effects and impact of regulatory measures.
– Chapter 3 explains the goals of the present scientific study, the
survey design, and the methodological approach taken.
– Chapter 4 uses empirical findings to clarify the general behaviour
of customers in the insurance market, taking that as a basis to infer
behavioural and market factors contributing to a heightened sense
of vulnerability.
– In chapter 5, we consolidate these individual data to arrive at
behavioural patterns, which are used to derive a typology of Swiss
consumers that is linked to differing levels of vulnerability.
– Chapter 6 discusses how customers perceive political regulatory
measures, what value they place on them, and where they still discern gaps in regulation.
– Finally, in chapter 7, we set the empirical results of this broad study
of consumers in relation to the requirements as regards effective
consumer protection, developing from that recommendations for
further discussions with the stakeholders – in particular for the
political debate.
2Consumer protection
in the insurance industry
2
2 Consumer protection in the insurance industry
–– Consumer protection in the insurance industry is the totality of measures
organised by the state and private industry with the aim of reducing not
only information asymmetries between customers and insurance providers, but also potential incentive conflicts.
–– Consumer protection can be divided up into measures taken to improve
consumer’s four basic rights, namely the right to safety/security, to be (fully)
informed, to be heard, and to choose. This breakdown can be traced back
to the Consumer Bill of Rights propounded by John F. Kennedy.
US president Kennedy was one of the first politicians to closely examine the issue of consumer protection. In a speech made in 1962, he
formulated four basic rights of consumers: the right to safety/security
(and safe products), the right to be thoroughly informed, the right
to be heard and the right to choose. A few years prior to that speech,
consumer protection was made a topic for the first time in Europe in
the Treaty of Rome (1957) – specifically in relation to the agriculture
industry and competition. These foundations were developed further
in Article 129a of the Treaty of Maastricht (1993), with specific goals
being added.1 In Switzerland, consumer protection has been anchored
in the Constitution since 1980.
As early as 1962, John F. Kennedy
formulated four basic rights
of consumers: the right to
safety/security, the right to be
informed, the right to be heard
and the right to choose.
Owing to their important role in the economy, insurance providers
have always been regulated. The central goal of regulation is the “protection of insured persons against the insolvency risks of insurance
companies and against malpractices” (see Art. 1 of the Swiss Insurance
Supervision Law (VAG)). Consequently, regulation of the insurance
industry is, at its heart, about consumer protection. However, consumer protection must not be reduced simply to state regulation, since
consumers can also be protected by means of voluntary commitments,
self-regulation, and disclosures on the part of insurers.
Consumer protection is at the
heart of insurance industry
regulation.
Consumer protection in the insurance industry can thus be defined
as the totality of measures taken by the state and by private industry
that contribute towards not only reducing information asymmetries
between customers and insurance providers, but also eliminating potential incentive conflicts. According to Kennedy’s underlying logic,
these are measures to improve a) safety/security, b) information, c)
the possibility of being heard and d) choice. But what exactly are
“information asymmetries” between insurance providers and their
customers? And what are “potential incentive conflicts”? In order to
answer these questions, we will first explain the goals of consumer
Consumer protection in the
insurance industry can thus be
defined as the totality of measures taken by the state and by
private industry that contribute
towards not only reducing information asymmetries, but also
eliminating potential incentive
conflicts.
1 These goals are defined in more detail in the Amsterdam Treaty (1999): “In order to
promote the interests of consumers and ensure a high level of consumer protection, the
Community shall contribute to protecting the health, safety and economic interests of
consumers, as well as to promoting their right to information, education and to organise
themselves in order to safeguard their interests.”
protection and what is expected of it, both in general terms and in the
particular environment of the insurance industry (chapter 2.1). On
this basis, we will then provide an overview of consumer protection in
the German-speaking insurance markets (chapter 2.2). Finally, we will
present the results to date of research into consumer protection in the
insurance industry (chapter 2.3).2
2.1 Necessity, goals and requirements
–– The necessity for consumer protection is given by the asymmetry of information between the customer and the provider of the product.
–– The goal of consumer protection is to prevent market failure and thus enhance social welfare. In particular, the asymmetry of information between
the customer and providers has to be reduced and potential incentive
conflicts eliminated.
–– The OECD has defined specific catalogues of requirements as regards
consumer protection, which can be used as guidelines when drafting
consumer protection regulations.
The danger of market failure is
the starting point for consumer
protection.
Potential market failure is generally cited as the reason that consumer
protection is needed. A market fails when the free-market economy
does not ensure that resources are allocated in a manner that is optimal
in terms of welfare economics. In this context, the optimum allocation
of resources is derived from a situation of perfect competition, in which
the sum of consumer and producer surplus – i.e. social welfare – is
maximised. This condition is fulfilled when there are many buyers and
sellers in a market, no barriers to entering or leaving the market, perfect
information, a homogeneous product that generates neither negative
horizontal effects nor free riders, and no transaction costs.
The need for consumer protection is derived in particular from
the fact that information is distributed asymmetrically and the
seller has an unfair advantage
over the consumer.
These requirements of perfect competition are not met in real life. The
need for consumer protection is derived in particular from the fact that
information is distributed asymmetrically and the seller has an unfair
advantage over the consumer. Accordingly, consumer protection in the
finance sector is justified by three circumstances (Rutledge (2010) and
Ardric/Ibrahim/Mylenko (2011)):
1. There is an inequality of power between the contracting parties that
disadvantages the consumer;
2. The financial services provider has an information advantage; and
the individual consumer has fewer resources with which to assert
his/her interests.
2 We have followed Eling & Kilgus (2014) in structuring the section on the fundamentals of
regulation and consumer protection.
20
An aggravating factor in the finance sector industry compared with
other industries is that business transactions can be rare, meaning that
the learning process for consumers can be difficult and/or financially
burdensome. Fund savings plans to build up assets are one example of
this. Further, it is difficult for consumers to assess the quality of the
service provided, especially in the insurance industry. Conclusion of the
contract and provision of the service may be very far apart on the time
axis, thus giving rise to the risk that consumers do not recognise deficits
in the service until it is too late (see, e.g., private pension insurance).
We also need to consider that, in the finance sector, customers are often
concluding contracts that are in large part designed to safeguard their
future livelihood.
The specifics of the insurance
industry mean that consumer
protection already plays an
important role there.
Potential incentive conflicts are another argument for consumer protection. Incentive conflicts arise with insurance policies typically in
situations where, after conclusion of the insurance contract, the insurer
– but also the policyholder – could theoretically increase the risk of
insolvency to an excessive degree or apply abusive market practices to
the detriment of the policyholder (this is known as an ex-post moral
hazard). These arguments – asymmetry of information and incentive
conflicts – are used in the insurance industry in particular to justify
the regulation of financial solvency. As they have assumed only limited
liability, the owners of an insurance company have only a limited incentive to ensure the company’s solvency – after all, their personal assets
are not at threat from unfunded obligations towards the policyholders.
It is very cost- and time-intensive – perhaps even impossible – for the
individual policyholder to monitor the insolvency risk of his/her insurer
either ex ante or ex post.3
These arguments – asymmetry
of information and incentive
conflicts – are used in the insurance industry in particular to
justify the regulation of financial
solvency.
In the finance industry, consumer protection is increasingly being
linked to financial stability. According to the Financial Stability Board
FSB (2011) and the World Bank (2012), one of the reasons for the
global financial crisis of 2008 was that financial service providers were
able to pass on part of their risks to retail customers and, in doing so, to
partially conceal them. If the retail customers had been better informed
and protected in the first place, it would not have been possible to build
up exposures of this magnitude. Another aim of consumer protection is
to avoid the risk of “contagion”, i.e. the possibility that a rising number
of insolvencies triggers a crisis of confidence, with negative knock-on
effects for the industry as a whole. That is why the insurance industry
has tended to set up guarantee funds, the purpose of which is to cover
at least part of a company’s liabilities in the event of insolvency and
thus limit policyholder losses.
Since the global financial crisis,
financial stability has increasingly been put forward as an
argument.
3 The same problem exists in the banking industry, where it serves as a reason for what is
known as delegated monitoring, i.e. the supervisory authority exercises the monitoring
function on behalf of the totality of investors (in our case: policyholders).
The consumer’s need for
protection depends strongly on
the individual line of insurance;
insurers’ business transactions with private households
need to be much more tightly
regulated than those with major
companies.
The policyholders’ need for protection depends strongly on the individual lines of insurance; insurers’ business transactions with private
households, for instance, need to be much more tightly regulated than
those with companies. That has implications for consumer protection.
There are generally many more regulations in the personal insurance
sector, for instance, than there are for reinsurance. In the former area,
the policyholders are retail customers, and it is assumed that they are
in greater need of protection. They are not in a position to monitor, at
reasonable cost, the financial strength and activities of their insurer. It is
debatable to what extent companies who are customers in the primary
insurance sector require protection, and the answer probably depends
on their size: a small business with five employees needs greater protection as a policyholder than a large corporation. Reinsurance business,
for example, is conducted solely between professional market players.
The need for protection is posited as being less acute, since professional,
insurance-literate companies are in a position to monitor the financial
strength and activities of their contractual partners with reasonable
effort and expense. What is more, it can be argued that, owing to the
greater contractual volume, companies generally have more leverage in
contractual negotiations than retail customers and can thus exert greater influence on insurers. A further argument is that private individuals
are directly affected by the financial repercussions of, for example, a
counterparty’s insolvency, whereas this is only indirectly the case with
the employees of a company.
Studies show that corporate insurance business exhibits a high
level of market discipline.
Studies, too, conclude that commercial lines (business with commercial
customers) require less regulation than personal lines (business with private individuals).4 This view is based on differences in what is referred
to as market discipline. Market discipline means that, in a transparent
insurance market, customers, investors and rating agencies have a
disciplining effect on the management of insurance companies. Any
malpractice on management’s part or any increase in risk exposure will
be quickly discovered and trigger a response from investors and customers, e.g. a drop in the share price or downward pressure on premiums.
Such potential backlashes can have a disciplining effect on management
behaviour, thus effectively protecting policyholders against mismanagement. Specifically, this means that, in business dealings with companies
(commercial lines), monitoring of the market players results in good
behaviour being rewarded and bad market behaviour being penalised.
4 See, for example, Epermanis & Harrington (2006) for the USA or Eling & Schmit (2013)
for Germany.
22
This effect does not necessarily apply in personal lines, thus further
underscoring the need for state intervention.5
The goal of consumer protection is to use state intervention to reduce
the risk of market failure – brought about, for example, by information
asymmetries or an imbalance in power and resources – and, ideally, to
eliminate that risk altogether. From the standpoint of the market economy, the aim of “good consumer protection” is therefore to improve
market conditions and thus enhance social welfare.
Consumer protection aims
to prevent market failure and
ensure a functioning competitive
environment.
Among other things, this assumes the regulator, supervisory authorities
and, more generally, lawmakers are in a position to process the necessary information adequately, to promptly and properly recognise when
a market has failed, and to implement and enforce suitable regulatory
measures. This assumption is not always met in reality, with the result
that not all cases of market failure can be resolved by means of regulatory intervention – whether because a market failure due to information
asymmetries between the market players and the supervisory authorities
is not (properly) recognised, or because the measures implemented
fail or do not function optimally (Kilgus, 2007). Accordingly, it is
essential to examine each instance of regulatory intervention in order
to determine whether it is suitable for achieving the desired goal and
to weigh up the benefits of regulation against its costs. To be justified
in regulatory terms, interventions by the state must in fact lead to a
better allocation of resources.
This goal of consumer protection is achieved when the
measures taken are suitable
for reaching the desired goal
and the benefits of regulation
outweigh its costs.
For example, the goal of consumer protection cannot simply consist
in avoiding all politically undesirable market outcomes, since the
costs incurred to achieve this goal would be substantially higher than
the benefits of such regulation. Previous attempts, such as regulating
premiums, either failed or led to deadweight losses.6 Another example
would be the attempt to rule out corporate insolvencies in the insurance sector altogether, which would lead to massive premium hikes for
policyholders and an enormous reduction in potential opportunities
for the company owners. From the perspective of both the policyholder
and the insurance company owner, this can result in non-insurability
and thus market collapse. Policyholders may not be willing to accept
enormous premium hikes, instead forgoing insurance cover altogether
(see Lorson/Schmeiser/Wagner, 2012). Nor may the company owners
be prepared to accept the huge reduction in their potential opportu-
The goal of consumer protection cannot consist in avoiding
all politically undesirable
market outcomes, since the
costs incurred to achieve this
goal would be substantially
higher than the benefits of such
regulation.
5 Another particular feature of the insurance market is that the insurers also have an incentive to monitor each other. Motives for monitoring can include, for instance, the ex ante
financing of guarantee funds or the concern that the actions of individual market players
could have negative repercussions for the entire industry (contagion effects).
6 There is consensus in the the literature that the effects of regulating premiums are negative (see, e.g., Joskow, 1973; Skinner, Childers & Jones, 1981; Klein, Phillips & Shiu, 2002).
nities as they cannot expect to receive any adequate return on their
capital. They will invest their capital elsewhere and cease to transact
insurance business.7
The challenge consists in
achieving the maximum level
of consumer protection while
keeping market distortion to a
minimum.
From this perspective, it also seems important to assess, for each instance of state intervention, whether there might not be alternatives,
e.g. in the shape of voluntary commitments on the part of the companies. Tennyson (2011) very neatly summed up the goal – and the
difficulty – of consumer protection regulation: “Choosing regulations
that produce the most protection for the minimum market distortion
is the key regulatory challenge.” [The challenge consists in achieving
the maximum level of consumer protection while keeping market
distortion to a minimum.]
The preceding discussion makes clear that the costs and benefits of
regulation are generally quite diverse. Following Eling & Kilgus (2014),
we can break down consumer protection costs and benefits into direct
and indirect effects (see Table 1).
Table 1: Costs and benefits of consumer protection
Costs
Benefits
direct
indirect
direct
indirect
–– Costs for the state (e.g.
legislative process)
–– Costs for enterprises
(both of state-prescribed
measures and voluntary
initiatives)
–– Costs for policyholders
(higher premiums, less
insurance cover)
–– Costs for business owners (lower profits)
–– Better information (reduction in asymmetries)
–– Reduction in incentive
problems (avoidance
of risk aggravation,
reduction in market
malpractice)
–– Changes in market
structure (e.g. withdrawal of dubious
providers)
–– Guaranteed systemic
stability
The state and enterprises incur
direct costs; indirect costs are
incurred by enterprises and
policyholders.
Direct costs are payments made directly by the state or by enterprises
in order to meet their consumer protection obligations.8 They may be
costs for complying with existing regulations (e.g. administrative costs
for the provision of more information), but also the cost of implement-
7 These remarks underscore the fact that regulation – even where it is intended to eliminate information asymmetries and market imbalances – can itself lead to a new, different
kind of market failure. In this context, some authors speak of regulatory failure. There can
be various reasons for this kind of failure: the market failure which is to be rectified is not
(properly) identified; or it may be properly identified but the measures taken are not adequate to rectify the problems; or the effort required to rectify the problems is disproportionately high, or the supervisory authority does not have the requisite human or financial
resources (see Kilgus, 2007).
8 When it comes to direct costs, it is necessary to distinguish the cost of regulation from
those costs that would have been incurred anyway. The latter are costs that an economic
entity incurs in any case and not as a direct result of regulation, e.g. accounting or IT security costs. See SECO (2011) and KMPG (2009).
24
ing new regulations. As regards the costs incurred by the supervisory
authorities, we should note that while these are initially incurred by the
state, they subsequently have to be financed in full by enterprises. By
contrast, indirect costs are opportunity costs, i.e. business lost through
regulation. Banning certain business models or market practices, for
instance, directly reduces enterprises’ sales and earnings. These costs
then result either in lower profits or in higher premiums, depending
on whether the additional costs are borne by the company owners or by
the policyholders. Regulation can also make it unattractive to offer an
insurance product, with the result that, in effect, less insurance cover is
available. One example of this is the discussion surrounding adjustment
of what is known as the “legal quote” in Switzerland’s occupational
pension system (BVG), which, if it were raised, could prompt some
players to exit the market.9
Any analysis of the benefits of consumer protection must directly
address the objectives of regulation. For example: To what extent does
the regulation (directly) serve to alleviate the problem of information
asymmetries? To what extent does it reduce incentive problems (i.e. the
taking of excessive risks)? To what extent does it prevent undesirable
market practices? To what extent does it address imbalances in power
between the individual stakeholders?
It is hardly possible to measure
the direct benefits of consumer
protection (reduction in
information asymmetries and
incentive problems).
Unfortunately, it is rarely possible to obtain this sort of information;
consequently, it is generally impossible to make a quantitative estimate
of the benefits of regulation. This example highlights the enormous
difficulties encountered in determining the benefits of regulation.
An analysis of the benefits of regulation also can reveal indirect – positive and negative – effects, such as changes in productivity and market
structure. Some of these effects are intended, whereas others may be
the unintended side effects of regulation. It is difficult to say whether
such effects are advantageous or not, the more so when we try to gauge
future effects. It would be positive if a new consumer protection regime
resulted in unsound players exiting the market. On the other hand, it
would be negative if new regulations caused market practices to disappear that were deemed undesirable, but ultimately served to maximise
overall economic welfare. Consequently, the effects of new regulations
on market structure and productivity should be thoroughly analysed in
order to differentiate between desired and undesired effects.
We need to closely analyse any
influence exerted on the market
structure so as to be able to
differentiate between desired
and undesired effects.
As already described, the former US president John F. Kennedy set
an important milestone in the systematic examination of consumer
John F. Kennedy’s demands as
regards consumer protection
are still relevant today and have
been made more specific.
9 The “legal quote” describes the sharing of profits between policyholders and the owners
of insurance companies; see Schmeiser (2015).
protection with his four basic consumer rights (right to safety/security, right to be informed, right to be heard, right to choose). Various
international organisations (such as the OECD and the World Bank)
have specified these basic rights further and subjected them to empirical
analysis.
The OECD has compiled a list
of principles that should be
observed with consumer protection measures in the finance
industry.
In 2011 the OECD, in collaboration with the Financial Stability
Board and on behalf of the G20, published a general catalogue of
requirements for consumer protection in the finance segment entitled
“G20 High-Level Principles on Financial Consumer Protection”.
This catalogue also applies to the insurance industry. According to
the OECD (2011), consumer protection in the countries in question
should comply with 10 general principles. These are shown in Table 2.
Alongside the aspects of safety/security, information, being heard and
choice expounded by Kennedy, the principle of “financial education
and awareness” – which is aimed at putting consumers in a position to
make sound decisions – is particularly worthy of attention.
Table 2: G20 high-level principles on financial consumer protection (OECD, 2011)
1. Legal, Regulatory and Supervisory Framework. Financial consumer protection should be an integral part of the legal,
regulatory and supervisory framework, and should reflect the diversity of national circumstances and global market and
regulatory developments within the financial sector.
2. Role of Oversight Bodies. Oversight bodies explicitly responsible for financial consumer protection should have: a) the
necessary authority to fulfil their mandates, b) clear and objectively defined responsibilities, c) operational independence,
d) accountability for their activities, e) the necessary resources and capabilities, f) a defined and transparent enforcement
framework transparent and g) clear and consistent regulatory processes.
3. Equitable and Fair Treatment of Consumers. All financial consumers should be treated equitably, honestly and fairly at
all stages of their relationship with financial service providers.
4. Disclosure and Transparency. Financial services providers and authorised agents should provide consumers with key
information that informs the consumer of the fundamental benefits, risks and terms of the product.
5. Financial Education and Awareness. Financial education and awareness should be promoted by all relevant stakeholders and clear information on consumer protection, rights and responsibilities should be easily accessible by consumers.
Appropriate mechanisms should be developed to help existing and future consumers develop the literacy (knowledge,
skills and confidence) to make informed choices.
6. Responsible Business Conduct of Financial Services Providers and Authorised Agents. Financial services providers
and authorised agents should have as an objective to work in the best interest of their customers. Financial services providers should assess the related financial capabilities, situation and needs of their customers. Financial services providers
and authorised agents should endeavour to avoid conflicts of interest.
7. Protection of Consumer Assets against Fraud and Misuse. Relevant information, control and protection mechanisms
should protect consumer’s deposits, savings, and other similar financial assets.
8. Protection of Consumer Data and Privacy. Consumers’ financial and personal information should be protected through
appropriate control and protection mechanisms.
9. Complaints Handling and Redress. Jurisdictions should ensure that consumers have access to adequate complaints
handling and redress mechanisms that are accessible, affordable, independent, fair, accountable, timely and efficient.
10. Competition. Nationally and internationally competitive markets should be promoted so that consumers can compare
and, where appropriate, switch between competing products.
26
Following the OECD’s lead, the World Bank carried out a survey of
consumer protection and financial literacy in 114 countries, dispatching a questionnaire to the supervisory authorities and central banks of
the countries in question. The survey divides consumer protection into
the seven focus areas listed in Table 3. In this catalogue of requirements,
too, the topic of financial education enjoys a prominent position.
The World Bank divides
consumer protection into seven
focus areas.
Table 3: World Bank classification of financial consumer protection (World Bank, 2014)10
1. Legal Framework – applicable laws and regulations covering consumer protection in financial services
2. Institutional Arrangements – institutional structure, function and powers of relevant authorities and modes of
cooperation among them
3. Fair Treatment – provisions, including restrictions, concerning deceptive advertising, the bundling of financial services,
abusive collection practices, etc.
4. Disclosure Requirements – regulatory requirements at account opening, periodic statements, and other
5. Responsible Lending – existence of regulation aiming at ensuring affordability and suitability of financial services and
avoiding overindebtedness
6. Dispute Resolution and Recourse – institutional arrangements for dispute resolution, requirements on timeliness and
accessibility, experience in terms of the type and number of complaints
7. Financial Education – promoting the consumer’s ability to understand the various financial services and make
informed decisions
Consumer protection is also a recurrent topic in requirements catalogues drafted specifically for the insurance industry. The Insurance
Core Principles (ICP) published by the International Association of
Insurance Supervisors (IAIS) are international guidelines for insurance
supervision. Launched by the IAIS in 2000, these principles build
on the Insurance Supervisory Principles of 1997. The IAIS has been
constantly updating and refining them since they were published.
The most recent version dates from 19 October 2013.11 Appendix
B shows the 2003 version. In particular, Principles 25 and 26 of the
ICP describe consumer protection and/or overlap with the OECD
principles, focusing especially on the right to be thoroughly informed.
Furthermore, there is considerable overlap in terms of content between
insurance-specific sets of criteria regarding regulation in general (IAIS,
Skipper & Klein, 2000) and the requirements of the OECD (2011,
2013) specifically aimed at consumer protection. All such catalogues
stress the importance of transparency and of ensuring that customers
receive comprehensible and objective information and advice. Appen10 A further classification of consumer protection by the World Bank that was drafted specifically for the insurance sector can be found in Appendix A.
11 See IAIS (2003). The totally reworked Principles 2011 (as revised in 2012 and 2013)
exhibit a different structure and different points of focus, and include experience gleaned
from the global financial crisis. The majority of the new points concern the supervision
rather than the regulation of insurers.
Consumer protection is also a
recurrent topic in requirements
catalogues drafted specifically
for the insurance industry.
dix C shows one example, namely the criteria for successful insurance
industry regulation proposed by Skipper & Klein (2000).
2.2 Statutory foundations and latest developments
–– Pursuant to Art. 97 of the Swiss Federal Constitution, it is the task of the
Confederation to take measures to protect consumers.
–– At its heart, insurance regulation is about consumer protection. This is
reflected most clearly in Art. 1 of the Swiss Insurance Supervision Law, the
purpose of which purports is to protect insured parties against insolvency
risks and malpractice.
–– The Swiss Insurance Contract Act (VVG), the Swiss Insurance Supervision
Law (VAG) and Federal Act on the Swiss Financial Market Supervisory
Authority (FINMAG) all contain important statutory underpinnings for
consumer protection.
Consumer protection is
anchored in the Swiss Federal
Constitution.
Art. 5 of the Swiss Federal Constitution sets out the principles for
conduct in accordance with the rule of law. According to this article, all
activities of the state must be based on and limited by law, conducted
in the public interest and proportionate with the ends sought.12 The
Swiss Federal Constitution (BV) does not prescribe any particular
economic order. According to prevailing doctrine, economic freedom
based on the principles of competition is enshrined in Art. 94 of the
BV, but this economic system may be subject to restrictions – where
necessary in departure from the principles of free competition – in the
interests of welfare and economic security, insofar as the principles of
Art. 5 and Art. 36 of the BV are complied with (see Häfelin, Haller &
Keller, 2012). In contrast to other industries, the regulation of insurers
is explicitly mentioned in the Swiss Federal Constitution. In accordance
with Art. 98 (3) of the BV, the Confederation may pass provisions,
among other things, on private insurance. Like the general provisions
on the economic system based on Art 95 of the BV, any such provisions
it passes must respect the principle of a competition-oriented economic
order enshrined in Art. 94 of the BV. We refer to Eling & Kilgus (2014)
for a general discussion of the statutory foundations of insurance
regulation in Switzerland. Consumer protection has been anchored in
the Swiss Constitution since 1980 and is codified in Art. 97 of the BV.
The key statutory foundations
in Switzerland are the Insurance
Contract Act (VVG), the Insurance Supervision Law (VAG)
and the Federal Act on the Swiss
Financial Market Supervisory
Authority (FINMAG).
Table 4 below lists the key statutory foundations that are of significance
for our comments on consumer protection. Of particular relevance
within this context is the fact that the protection of consumers has
had constitutional status in Switzerland since 1981. It is also worth
12 See Häfelin, Müller & Uhlmann (2010). The authors supplement the three basic principles
with the constitutional precepts of equality before the law, the prohibition of arbitrariness
and the principle of utmost good faith under public law.
28
noting that, at its heart, the regulation of insurance is tantamount to
consumer protection, since the main purpose of the Swiss Insurance
Supervision Law (VAG) is to protect insured persons against the risk
of insurance companies becoming insolvent and the risk of malpractice
(Art. 1 of the VAG).
Table 4: The statutory and constitutional provisions on consumer protection that are
of relevance for this study
Art. 97 of the Swiss Federal Constitution: Protection of Consumers
1
The Confederation shall take measures to protect consumers.
2
It shall legislate on the legal remedies available to consumer organisations.
These organisations shall have the same rights under the federal legislation on unfair competition as professional and trade
associations.
3
The Cantons shall provide a conciliation procedure or a simple and rapid court procedure for claims of up to a certain
sum. The Federal Council determines this sum.
Federal Act on Consumer Information (KIG)
Art. 1: The purpose of this law to promote the provision of objective information to consumers by means of:
–– regulations concerning the labelling of goods and the disclosure of the content of services;
–– financial assistance to consumer protection organisations.
Federal Act on Collective Capital Investment Schemes (KAG)
Art. 1: The purpose of this law is to protect investors and to enhance the transparency and functionality of the market for
collective investment schemes.
Federal Act on Stock Exchanges and Securities Trading (BEHG)
Art. 1: This act sets down the requirements for the establishment and operation of stock exchanges as well as for the
commercial trading of securities in order to ensure transparency and equal treatment for investors. It creates a framework
for guaranteeing that securities markets function efficiently.
Insurance Contract Act (VVG), e.g.:
–– Art. 3: Insurer’s duty to provide information
–– Art. 4–6: Obligation to disclose information
–– Art. 15: Moral imperatives
Insurance Supervision Law (VAG)
Art. 1: 2 It is aimed particularly at protecting insured parties from the risk of insurance companies becoming insolvent, and
against malpractice.
Federal Act on Financial Market Supervision (FINMAG)
Art. 5: In accordance with the financial market acts, financial market supervision has the objectives of protecting creditors,
investors, and insured persons as well as ensuring the proper functioning of the financial market. It thus contributes to
sustaining the reputation and competitiveness of Switzerland’s financial centre.
Comprehensive regulations are already in place to protect consumers in
the insurance sector (for an overview of these, see Appendix D). This
contrasts with other industries, where consumer protection in Switzerland can be described as relatively liberal.13 In the insurance sector,
however, we are confronted with far-reaching regulations as regards
13 With its liberal traditions, Switzerland has less consumer protection legislation in place
than other countries. In contrast with the laws of most other countries, for example, Swiss
legislation on sales contracts is largely free of consumer protection provisions. Examples of
this include the country’s much more restricted revocation and warranty rights. See Heckendorn Urscheler (2012).
Comprehensive regulations are
already in place to protect consumers in the insurance sector.
solvency – which constitutes the central pillar of consumer protection
in this industry. As early as 2011 Switzerland introduced the Swiss Solvency Test (SST) – a binding, risk-based model for regulatory capital;
such a model is still to be introduced in the European Union.14
New rules for intermediaries
have been passed in the EU.
In recent years, the European Union has enacted many new regulations,
especially as regards insurance mediation (e.g. the Insurance Mediation
Directive; Directive 2002/92/EC of the European Parliament and of
the Council of 9 December 2002 on Insurance Mediation). These have
entailed a considerable number of additional obligations as regards
documentation and the provision of information. In its efforts to keep
pace with developments in relation to above-mentioned EU Directive
of 2002, Switzerland regulated the field of insurance mediation for the
first time as part of its total revision of the Insurance Supervision Law
(VAG), which was enacted in December 2004 (see Art. 40 et seq. of
the VAG and the Insurance Supervision Ordinance (AVO)). The Swiss
regulations concerning insurance intermediaries introduced in 2004
emulate the above-mentioned EU Directive of 2002 in the sense of
autonomous implementation.
One of the main objectives of
the revision of the VVG is to
strengthen consumer’s rights.
In addition, Switzerland’s Insurance Contract Act (VVG) is to be
revised. First enacted in 1908, the law is more than a century old and
no longer meets the requirements of the modern world. Several urgent
amendments were already made in 2006 as part of a partial revision of
the act. The purpose of the new revision is to comprehensively adapt
the Insurance Contract Act to the requirements of the 21st century and
to the altered needs of customers. The Federal Council’s initial proposal
for a total revision of the act was rejected by both the National Council
and the Council of States. In March 2013, the Federal Council was
once again tasked with preparing a proposal for a partial revision of the
VVG (see Federal Department of Finance, 2014a).15
In the wake of the global financial crisis, additional measures
aimed at enhancing consumer
protection were passed in
Europe, e.g. the Insurance Distribution Directive (IDD) and the
Markets in Financial Instruments
Directive (MiFID II).
In the wake of the global financial crisis, additional measures aimed at
enhancing consumer protection were passed in Europe. These include
the Insurance Distribution Directive (IDD) and the Markets in Financial Instruments Directive (MiFID II). The IDD contains numerous
innovations compared with the current IMD, including specific rules
for the sale of insurance investment products and the introduction
of information sheets for non-life insurance products. The legislative
process for the IDD has largely been concluded (political agreement
14 Corresponding regulations (Solvency II) are to be implemented in the European Union in
2016, with mandatory application only after a transitional phase.
15 It should be noted that several measures have already been implemented in this area in
the form of voluntary initiatives on the part of the industry (such as a further-training
scheme for insurance advisors (CICERO)).
30
achieved on 30 June 2015; the European Parliament and the European
Council will probably give their official assent this autumn). MiFID II
contains a ban on commissions; in future, asset managers will not be
allowed to accept or keep fees, commissions or other monetary benefits
from third parties (Art. 24 (8) of the MiFID II). Although MiFID II
and the corresponding new regulation (MiFIR) do not apply to the
insurance industry, the question regarding a ban on commissions for
certain speculative financial products has repeatedly been a topic of
controversial discussions within the industry.16
Another initiative at EU level concerns the standardised package leaflet
for investment products, often referred to in the context of “packaged
retail and insurance-based investment products” (PRIIPs). The regulation introduces a so-called key information document (KID): a simple
leaflet to provide investors with the main information about a financial
product in a clear and comprehensible manner. The regulation does
not merely apply to investment funds, but also to other structured
products marketed by both banks and insurance companies. The legislative process in relation to PRIIPs has already been concluded. The
new EU regulation on key information documents for packaged retail
and insurance-based investment products (PRIIP) was passed on 26
November 2014. The regulation will apply as of 31 December 2016.
The EU, is also introducing a basic information sheet (a KID for
investment products, PRIIPs).
It is to be expected that certain consumer protection issues currently
being discussed in the EU will become relevant in Switzerland, too, in
the years ahead.17 In our view, the key issue here is to learn from the
experience of the EU, as some of the developments there are highly
controversial.18 While there are indeed regulatory projects in the EU
that Switzerland could benefit from adopting, there are also areas in
which the adoption of EU standards is potentially unviable from an
economic viewpoint and therefore inadvisable. In such cases, Switzerland should use its membership of international organisations to
point out misguided developments in these forums. It should be noted, however, that some regulations implemented outside the country
will also have an impact on Switzerland. In order to ensure that local
Reservations concerning the
unthinking adoption of EU
regulations.
16 In certain northern European countries, a ban on commissions is already in place for particular financial products, whereas other countries (e.g. Germany) are considerably more
reserved in this area. The ban on commissions enacted in the UK has been hotly debated,
as the market for financial consultation is now open only to very affluent customers (see
Clare et al, 2013).
17 Art. 7 of the FINMAG requires compliance with minimum international standards. What is
more, it may be important for insurers active in the international market to ensure equivalence as they would otherwise run the risk of being discriminated against and suffering
competitive disadvantages.
18 For example, the extensive documentation obligations required by the Mediation Directive
and the implications of a ban on commission are hotly debated issues in the literature (see
Chapter 2.3 for more details).
financial services providers have access to the EU market, the regulatory
environment in Switzerland must be deemed to be equivalent to its
European counterpart.
Consumer protection issues
will be addressed in the revision
of the VVG, and also in the
FIDLEG.
In Switzerland, consumer protection in the insurance industry is to
be reworked in particular through a partial revision of the Insurance
Contract Act (VVG). A second project – the Financial Services Act
(FIDLEG) – is addressing consumer protection across the financial
services sector as a whole. Like MiFID II, FIDLEG provides for condensed obligations as regards disclosure, documentation, clarification
and information for all financial services providers.19 In addition, it
introduces new training requirements for customer advisers and product-specific documentation obligations (prospectuses, key information
documents). FIDLEG will impact the insurance industry especially as
regards surrenderable life insurance policies. However, non-life insurance is affected as well since the Insurance Supervision Law (VAG) is
set to be revised in parallel with the introduction of FIDLEG.
Compared with other countries,
Switzerland has a strict solvency
regime, but relatively little
regulation when it comes to
products.
Compared with other countries, FINMA’s supervision strategy presupposes a relatively strict solvency regime, but relatively little regulation
when it comes to products.20 As we will demonstrate in detail in Chapter 2.3, this approach conforms with academic findings regarding the
effectiveness of consumer protection. Solvency supervision is thus easily
justifiable in economical terms, whereas other forms of regulation (e.g.
prices, products) are seldom considered to be expedient or effective (see
Chapter 2.3 for more details).
Consumer protection must
be understood as entailing
more than just a regulatory
framework. It comprises all the
factors enabling consumers to
move freely within the market
and granting them the means to
make informed decisions that
are in tune with their needs.
It is also important to see consumer protection as comprising more
than just a regulatory framework. We understand consumer protection
to be broader and to include all the parameters that enable consumers
to move freely within the market and that grant them the means to
make informed decisions that are in tune with their needs. To this
extent, insurers, too, may implement consumer protection measures.
The advantage of this approach is that it could enable insurers to
make a name for themselves in the market through their consumer
protection initiatives. One example of such voluntary initiatives are
19 The purpose of FIDLEG is to protect customers of financial services providers and to
create comparable conditions for the provision of financial services. To this end, it sets out
the requirements for the faithful, diligent and transparent provision of financial services and
formulates rules for offering financial instruments and how customers can assert civil-law
claims. It also regulates the organisation and licensing of: a) the agency tasked with regis
tering customer advisers; b) the authorities responsible for vetting prospectuses and
c) Ombud Offices (Federal Assembly, 2014).
20 See, for example, FINMA’s first strategic goal on prudential supervision. Where there have
been specific interventions in product design, they were not generally initiated by FINMA,
but were implemented for political motives, e.g. in the area of occupational pensions
(BVG) or health insurance.
32
the sample calculations provided for unit-linked and traditional life
insurance products, which make it easier for consumers to compare
these complex products. Another example is the privately organised
ombud system, which functions as an independent arbitrator when
insurers and their customers disagree on the content and scope of cover
of insurance policies.
2.3 Research results on effectiveness and efficiency
–– Ultimately, all areas of insurance industry regulation are concerned with
consumer protection. That makes it virtually impossible to draw a clear line
between regulation and consumer protection.
–– When analysing the effectiveness of regulation, it is important to make
a distinction between intended and unintended effects/consequences.
Regulation often has unintended side effects.
–– Whereas ensuring solvency and improving the provision of information to
customers are aspects of regulation that are viewed positively in the literature, price regulation and restrictions on market practices are regarded as
being negative.
Klein (1995) divides insurance industry regulation into four categories,
all of which are inseparably linked to consumer protection.
Four categories of regulation
are closely related to consumer
protection.
1. Solvency, including accounting standards. Monitoring the security of policyholders and intervening when an insurer gets into
financial difficulties. This area is tied up with consumer protection
since an insurance company’s guaranteed solvency is not an end in
itself, but something worth striving for in the interests of its policyholders. On the basis of JFK’s system of four basic rights, this would
equate to the right to safety/security.
2. Prices, and terms and conditions of insurance. This field of regulation is justified solely in terms of consumer protection, It equates
to Kennedy’s right to choose.
3. Market practices as regards sales and the underwriting of risks. This
field of regulation is justified solely in terms of consumer protection,
and corresponds to Kennedy’s right to be heard and right to choose.
4. Other functions, such as improving the provision of information
to customers. Here, too, consumer protection plays an important
role. The comparable right in Kennedy’s system would be the right
to be informed.
In the following, we will discuss the findings of scientific studies on
these four categories. Table 5 provides an overview of the key results.
Effectiveness tends to be assessed as positive in two categories (solvency,
customer information). However, the danger of side effects is emphasised in these categories as well.
In two out of four categories a
positive assessment of effectiveness is assumed.
Table 5: Effectiveness of regulation
Categories according to Klein (1995) Effectiveness
–– Effectiveness tends to be assessed positively
–– But danger of side effects (e.g. influence on management decisions, market
structure)
–– Vgl. e.g. Pottier & Sommer (2002); Eling, Schmeiser & Schmit (2007); Doff
(2008); Holzmüller (2009); Haldane (2012); Grace et al. (2014)
1. Solvability
2. Prices, and terms and conditions of –– Effectiveness tends to be assessed negatively
insurance
–– Hinders market access, pushes up prices, fewer transactions, higher risk of
insurer default
–– See, e.g., Joskow (1973); Hill (1979); Derrig & Tennyson (2011) and Browne &
Frees (2004)
3. Market practices in sales and
underwriting
–– Effectiveness tends to be assessed negatively
–– Leads to higher costs (e.g. Mediation Directive) and adverse selection (e.g.
unisex premium rates)
–– See, e.g., Schwarzbach et al (2011); Sass & Seifried (2012); Schmeiser, Störmer
& Wagner (2013)
4. Other functions, such as improving the provision of information to
customers
–– Effectiveness tends to be assessed positively
–– But implementation often poor as so little of the information is available in
standardised form (information overload)
–– See, e.g., Glenzer, Gründl & Wilde (2013); Spindler et al. (2013)
Improved information for customers is generally considered
to be a positive thing, but there
is a danger of information
overload.
As regards point 4, we should note that, although the evidence concerning the benefits of improved customer information is generally
of a positive nature, it is quite contradictory when viewed in detail.
Although, at first glance, it would seem obvious that greater transparency and more information enable buyers to make better decisions21,
there is increasing indication that this is not the case in reality. Glenzer,
Gründl & Wilde (2013) demonstrate that buyers of insurance respond
quite differently to information on prices and benefits, depending on
how that information is presented. In addition, more information
does not necessarily lead to better decisions, especially because the
standard terms and conditions of insurance, which typically form part
of the contract, are very difficult for policyholders to understand.22
Cude (2005), for example, shows that a large number of insurance
customers do not even look at the components of the contract in
detail, while a further group does look at the contract components but
doesn’t understand them. Cude (2005) also makes specific proposals for
improving the wording of contracts (briefer format, less information,
21 This is linked to the idea of market discipline, i.e. well-informed customers are in a position
themselves to sanction inappropriate behaviour on the part of providers and to reward
behaviour they deem appropriate. Market discipline functions particularly well with industrial lines, but less so with personal lines; owing to the danger of a run, market discipline
also works better with banks than with insurance companies; see Eling (2012).
22 It should be noted that not every policyholder will necessarily understand the additional
information provided. It is conceivable, however, that product rating agencies or consumer
protection organisations, for example, could aggregate the information to enhance its relevance to consumers.
34
no legalese, specific (not abstract) information with examples). In view
of this discussion, it would make very good sense to develop a key
information document (KID, product profile), which briefly describes
the main product features, enabling customers to draw comparisons
with other products.
In this context, we refer to the bounded rationality theory and the
field of behavioural insurance. According to the bounded rationality
theory, people caught up in complex decision-making processes are
unable to process all the information at their disposal and respond
by applying simplification strategies (heuristics). In an information
overload situation, therefore, the goal of enhanced information (and
thus a reduction in information asymmetries) is not achieved. In connection with the EU’s MiFID II, for example, Spindler (2013) argues
that investors are not in a position to properly process the information
made available to them.
People caught up in complex
decision-making processes
are unable to process all the
information at their disposal and
respond by applying simplification strategies (heuristics).
In recent times there have been a number of new developments as
regards the regulation of market practices (point 3) in sales and underwriting, which have met with a critical reception in the literature. These
include, in particular, topics such as the Mediation Directive and unisex
premium rates. In the case of unisex premium rates, a policyholder’s
gender may not be used as a rating criterion – even if it is a relevant risk
factor. This has implications, especially for life and pension insurance,
but also motor vehicle insurance. In each of these three areas, statistics
show that men and women pose significantly different risks: statistics
show that, on average, women live longer than men and cause fewer
accidents. Therefore, all else being equal, women ought to pay lower
life and motor vehicle insurance premiums, and higher ones for pension insurance. Unisex premiums rates, however, mean that men and
women pay the same amounts.
The regulation of market practices in the areas of sales and
underwriting is often viewed
negatively.
At first glance, unisex premium rates look like a zero-sum game, with
insurance premiums rising for the gender with the lower risk and sinking for the one posing the higher risk. In fact, it is not a zero-sum game
at all as it leads to adverse selection: higher premiums cause demand
for insurance from the lower-risk gender to fall. At the same time,
demand for insurance from the higher-risk gender rises. That leads
to a deterioration in the overall risk structure of the pool of insured
persons, in turn compelling the insurer to raise insurance premiums
again. On aggregate, the resulting situation is thus clearly worse from
a macroeconomic standpoint.23 Recent press reports point to this very
consequence of unisex premium rates (see Oberhuber, 2012). So, in
With unisex premium rates,
society accepts that the premium structure is geared not to
economic efficiency criteria, but
to “fairness criteria”.
23 See Saas & Seifried (2012). In extreme cases, insurance can become so unattractive for the
lower-risk gender that only the higher-risk gender is interested in taking out insurance and
the premium rates end up rising to the higher level that this group used to pay anyway.
order to achieve the goal of non-discrimination between men and
women – which, in itself, is perfectly legitimate – society willingly
accepts that the premium structure is geared not to economic efficiency
criteria, but to “fairness criteria”. The public has to finance the goal of
equality between men and women through higher premiums.
The Mediation Directive has
come in for criticism in practice,
especially because of the considerable additional expense it
entails, e.g. documentation and
disclosure obligations.
The new Mediation Directive has come in for criticism in practice,
especially because of the considerable additional expense it entails,
e.g. documentation and disclosure obligations that do not add any
real value for the customer (see Braunwarth et al, 2009). Although
Schwarzbach et al (2011) state that, in empirical terms, there is no
evidence of higher consultation costs, they admit that their method
of measurement probably did not reflect all the cost factors involved.
In addition, they call into question the benefits of the Mediation
Directive. Braunwarth et al (2009) also point out the problems of the
additional costs brought about by the Mediation Directive, but underscore in particular the associated opportunities, e.g. in the shape of
higher-quality customer data. Whether these opportunities have been
grasped with the implementation of the directive, remains unanswered
in empirical terms.24
A very negative view is taken of
price regulation.
The results of research into the effects of restrictions on the freedom to
set prices and on the underwriting of risks (point 2) are very negative.
According to the evidence, such regulatory measures tend to increase
costs for policyholders and hinder access to the insurance market,
meaning that fewer transactions are carried out.25 It has also been
demonstrated that insurers whose pricing is regulated have a higher
risk of default (see Klein, Phillips & Shiu, 2002). Consequently, the
benefit of regulation in this area is highly questionable. With very few
exceptions, price controls on insurance products have been abolished;
the only exceptions in Switzerland are to be found, e.g., in the areas of
occupational pension insurance and supplementary health insurance.
There is a general consensus
on the need for solvency regulations, but much controversy
surrounds their actual implementation.
Studies into the implications of solvency regulations (point 1) reveal
that this form of regulation can be conducive to general welfare.
Indeed, researchers agree that it is in the best interests of both policyholders and insurers if the aim of regulation is to improve the sharing
of information as regards solvency (Klein, 1995) and if regulation
is ultimately able to prevent the negative externalities arising out an
insurer’s insolvency. Despite this fundamentally positive assessment,
numerous studies have been published on solvency that call into
24 In Switzerland, it is currently still unclear whether the requirements that the planned
FIDLEG imposes on relationship managers at the point of sale will one day also apply to
insurance intermediaries and/or insurance advisers at insurance companies.
25 See Joskow (1973); Hill (1979); Harrington (1990); Browne & Frees (2004); Bhattacharya,
Goldman & Sood (2004); Derrig & Tennyson (2011).
36
question the effectiveness and efficiency of such regulations. Whereas
there is a general consensus on the need for solvency regulations, much
controversy surrounds their actual implementation. See Eling/Kilgus
(2014) for a more detailed discussion of solvency regulations.
The above discussions underscore that, in addition to intended consequences, regulation can generate both unintended side effects and
even externalities.26 Table 6 shows such externalities using an example
from the financial services sector. One of the best-known examples
is the risk-aggravating incentives brought about by the guarantee
mechanisms of banks (deposit insurance) and insurance companies
(guarantee funds). Whereas such security mechanisms achieve their
intended effect of protecting policyholders against insurer insolvency,
this goal is counteracted by an increase in the average risk assumed by
the industry because these mechanisms lower the incentives for effective risk management. Another example of the undesired side effects
of regulation is the above-mentioned unisex premium rates and the
associated risk of adverse selection they give rise to.
26 A classic example of a positive externality is the reduction in the bicycle theft rate brought
about by the introduction of an obligation to wear a bike helmet. The goal of the regulation was to mitigate the consequences of bike accidents, but it was not expected that
this would also have an influence on the rate of bike theft (see Killias, Camathias & Stump,
2000).
We must not neglect the dangers posed by the side effects of
regulation.
Table 6: Studies on the side effects of regulation
Example
Intended effect
Unintended side effect
Source
Deposit insurance
Banks
To protect customer assets
against insolvency
Moral hazard,
industry takes higher risks
Demirgüç/Kunt/
Detragiache (2002);
De Ceuster/
Masschelein (2003)
Guarantee fund
Insurers
To protect customers against
insolvency
Moral hazard, industry takes higher risks
Lee/Mayers/
Smith(1997); Downs/
Sommer (1999);
Dong/Gründl/
Schlüter (2012)
Adverse selection
Saas/Seifried
(2012);Schmeiser/
Störmer/ Wagner
(2013)
Unisex premium rates Equal treatment of men and
women
Price regulation
To protect customers against
Higher prices, less insurance cover, higher
price competition from high-risk risk of default
providers of cheap insurance
Insurance mediation
(IMD and IDD)
Better information for
customers and uniform legal
framework within the EU
Distortions of competition, higher prices, PwC (2011); Euroless competition and less insurance cover pean Commission
depending on design of IMD2
(2012)
Financial services
(FIDLEG)
Consumer protection, level
playing field, secure access to
EU market
Higher costs, customers bear less
personal responsibility
Even measures deemed to be
effective must be assessed in
terms of their efficiency (costs
versus benefits).
Joskow (1973); Hill
(1979) Klein/ Phillips/
Shiu (2002)
Federal Department
of Finance (2014b)
Even with consumer protection measures that, in principle, must be
regarded as effective, it is still necessary to examine their efficiency in
each and every case. That means a measure is efficient if the benefits
it achieves outweigh the associated costs. It is also necessary to check
whether the envisaged goals can be achieved at lower cost. Thus far,
there is no recognised procedure for measuring the costs and benefits
of regulation. While it is fundamentally possible to measure the costs of
regulation, the variance in the results is generally very large depending
on the assumptions made. It is also very difficult to measure the benefits
of regulation. See Eling/Kilgus (2014) for a summary of the methods
used and a more detailed analysis of their weaknesses.
As mentioned above, there is as yet no recognised procedure for measuring the costs and benefits of regulation. Table 7 is a list of specific
studies on consumer protection.27
27 European Commission (2012) refers to the Commission’s proposal of July 2012 for a new
version of the IMD, which was later implemented as a new directive under another name
(Insurance Distribution Directive (IDD)). PWC (2011) analyses the consequences of the
IMD of 2002.
38
Table 7: Studies on the effectiveness and efficiency of consumer protection in the finance industry
Study
Focus
Results
BASS (2010)
Total revision
VVG
–– The existence of transaction costs, bounded rationality and information asymmetries
are the fundamental justification for an Insurance Contract Act that restricts contractual
freedom.
–– Altered circumstances make a revision of the VVG necessary; only a revised law will
continue to fulfil its purpose.
–– Especially from the customer standpoint, benefits result from better consultation and
information. Increased competition as regards prices and quality is also to be expected.
Claims costs will fall.
–– Implementation costs will be the main expense incurred. Higher premiums are likely as
fewer benefits will be excluded.
–– Overall economic welfare will increase thanks to the elimination of “market deficiencies”.
PwC (2011)
IMD
–– The information provided to customers would be improved and a uniform regulatory
framework created.
–– However, overly extensive disclosure obligations would tend to confuse customers and
not help them to make better decisions.
European
Commission
(2011)
MiFID2
–– Better information for customers and a broader remit for supervisory authorities are
cost-efficient.
–– In order to avoid distortions of competition, a new category of trading venues with corresponding regulations should be introduced.This would be cheaper and more effective than
subjecting certain market players, such as high-frequency traders, to stronger regulation.
European
Commission
(2012)
IDD
–– Consumers will be better informed and equivalent competitive conditions created.
–– Total administrative implementation costs estimated at €617 million for all stakeholders.
Federal
Department
of Finance
(2014b)
FIDLEG ,
FINIG
–– The main goals will be achieved. Customers will be better informed and receive enhanced
consultation. Access to the EU market will be preserved and competitive conditions for
market players harmonised.
–– Asset managers, however, will have quite considerable costs to bear. Special attention
should be paid to ensure that these costs remain within “acceptable” limits, especially
for smaller enterprises.
The general thrust of all projects on consumer protection in the finance
industry currently in progress in the EU and Switzerland is to improve
the information provided to customers. At the same time, the draft laws
aim to promote a level playing field for all market players – be they
insurance companies, banks or intermediaries. Given the constraints of
market discipline, it is to be assumed that a level playing field will ultimately also be in the interests of consumer protection. These measures
are often described as positive when the consequences of regulations
are being assessed (see Table 7).
As a general rule, the efficiency
of consumer protection must be
viewed as positive, but questions
remain as to the effects of the
costs consumer protection
involves.
It is important to note that the costs and benefits of consumer protection are not equally distributed between the stakeholders. We must
assume that consumers (e.g. through a better basis for decision-making)
and overall economic welfare (e.g. through greater competition) are the
main beneficiaries. It is not clear, however, which party ultimately bears
the costs of regulation. If planned consumer protection regulations
also result in more competitive pricing, it is the insurance companies’
shareholders that ultimately bear the costs (Bass, 2010). If not, we must
Whereas the consumers will
be the main beneficiaries, it is
not clear who will have to bear
the costs.
assume that at least a portion of the costs will be passed on to consumers (Federal Department of Finance, 2014b). Even in a situation
of full competition, we must assume that a large portion of the costs
incurred will be passed on to consumers because the companies are
offering their products at marginal cost and the latter would generally
be increased by additional consumer protection measures. If the costs
cannot be passed on, there is a danger that companies will decide not
to offer certain products any more.
40
Empirical
3
study:
Consumer protection
in the consumer’s view
3
3 Empirical study: Consumer protection in the consumer’s view
3.1 Objectives of the study
–– While many different parties have discussed the topic of consumer
protection, to date the view of Swiss consumers themselves has not been
researched very much. The purpose of the present study is to fill this gap
and present the consumer’s view of this topic.
–– An empirically derived consumer typology and an evaluation of different
consumer protection measures allow us to derive a number of recommendations for the insurance industry.
Since the global financial crisis of 2007/2008, the issue of consumer
protection in the financial and insurance markets has been the subject
of recurrent debate in Switzerland. As a logical consequence of this,
the Federal Council requested in 2012 that a new Financial Services
Act (FIDLEG) and Financial Institutions Act (FINIG) be drafted with
the goal of extending investor protection for the customers of financial
services providers. In 2013, parliament rejected a total revision of the
Insurance Contract Act (VVG), instead requesting a partial revision.
The form that this partial revision should take is currently still under
discussion.
Consumer protection is a topic
currently being discussed by the
Federal Council.
Various parties are involved in the ongoing discussions of how consumers can be provided with effective and efficient protection and
what measures are best suited to achieving this goal. However, the
stakeholder group at the very centre of these discussions has hardly been
researched thus far. Who are the consumers, what protection do they
need and in what areas? Thus far, nothing clear has been heard from
consumers themselves. The present study attempts to fill this gap and
present the consumer’s view of consumer protection.
Little research has been carried
out into what form of protection
consumers think they need.
The study has three main objectives: 1) to record consumer protection
from the consumer’s viewpoint; 2) to develop a consumer typology
on the basis of personal factors that tend to favour a certain degree
of vulnerability, and 3) to draw up guidelines for developing effective
consumer protection in Switzerland. We will first take a closer look at
these objectives by posing orienting questions for each of them.
1. The first objective of the study consists in discussing the insurance
market, and the opportunities and risks it gives rise to, from the
consumer’s perspective. Central to this are the questions of how
consumers approach insurance matters, how they make decisions
and what role the insurer and consultation play in this regard.
Objective 1: Record consumer
protection from the consumer’s
standpoint.
Further, existing protective measures in the insurance market need to
be evaluated from the consumer’s point of view. This raises the question
of the extent to which the former are known to consumers and whether
they have made use of them. It is also necessary to find out to what
extent consumers consider the measures available to be appropriate
and adequate.
Objective 2: Record the
different behavioural patterns of
Swiss consumers in dealing with
insurance.
2. Another objective of the study is an accurate analysis of customer
behaviour when it comes to insurance, so as to subsequently assess
consumer’s vulnerability potential. A consumer typology will be
used to clearly identify behavioural patterns. The typology is intended to make clear which individual features and factors influence the
consumer’s need for protection. In addition, we will determine the
distribution of these consumer types across Switzerland in order to
gain an overall picture of Swiss consumers.
Objective 3: Draw up guidelines
for effective consumer protection.
3. The final objective of the study is to develop guidelines for effective
consumer protection in Switzerland. To this end, Swiss consumers
will be divided into different types as a basis for evaluating a number of consumer protection measures. Central to this are insights
into the influence that companies and state institutions can exert
on consumer vulnerability. In particular, a balance must be struck
between personal responsibility and the protective measures imposed by the state.
With these three objectives, the study strives to deliver a comprehensive overall picture, make a well-grounded judgement of consumer
protection from the consumer’s viewpoint, and develop the necessary
protective measures.
44
3.2 Methodology
–– The study attempts to achieve its objectives in three consecutive phases.
–– In Phase I, we survey the diverse attitudes toward consumer protection in
the insurance industry via seven, heterogeneously formed, focus groups.
–– In Phase II, 81 individual interviews shed light on the process of individual
insurance decisions.
–– In Phase III, a Switzerland-wide online survey of 1,027 people allows us to
make valid quantitative statements regarding the consumer typology.
The objectives of the study call for a hybrid methodological approach.
In order to do justice to all of the three points mentioned in Chapter
3.1, the present study proceeds in three consecutive phases: (1) focus
groups, (2) interviews and (3) online survey. This combination of
qualitative and quantitative methods makes it possible to draw a
detailed overall picture of how and when consumers think about, and
reach decisions on, insurance. Figure 1 shows how the three phases
interlock. The target group in all three phases consisted exclusively of
retail customers of insurance services.
The combination of qualitative
and quantitative methods makes
it possible to draw a detailed
overall picture of how and when
consumers think about, and
reach decisions on, insurance.
Fig. 1: The three phases of the study
Definition, delimitation and
description of consumer
groups on the basis of the
findings to date
Survey
Validation and review of
typology
Scale
Indications of consumer
groups and their particular
views
Interviews
Understand
Explore
Focus groups
Phase I Focus groups
Discussions with seven focus groups across Switzerland formed the core
of the first phase. The goal of these was to record blind spots as regards
consumer protection in the insurance industry and to gain insights
into the different protection needs of the various consumer types. The
results of this phase provide the framework for Phases II and III.
The exploratory approach taken in Phase I resulted in wide-ranging
findings on existing attitudes to consumer protection in the insurance industry. To this end, meetings with seven focus groups were
organised, each lasting two hours. A total of 58 people (50% male
and 50% female) took part. In regional terms, the focus groups were
located in Zurich (three focus groups), St. Gallen (three focus groups)
and Lausanne (one focus group). The age structure and occupational
backgrounds of the participants are shown in figure 2.
Seven focus groups comprising
a total of 58 participants were
organised in three regions of
Switzerland: Zurich, St. Gallen
and Lausanne.
Fig. 2: Distribution of focus group participants by age and occupation, n=58
16%
38%
16%
Lawyer, engineer
2
Accountant, controller
2
Designer, photographer
3
Marketing, communications
3
Care professions
3
4
Customer services
5
IT operations, logistics
30%
6
Education and training
8
Waiter, receptionist, kitchen staff
aged 18–30
aged 31– 40
aged 41–50
aged 50 and older
10
Commercial staff
12
Not employed
0
Heterogeneity of focus groups
encourages lively discussions.
5
10
15
Eight people were invited to take part in each focus group. In the
interests of lively discussions, care was taken to ensure a good mix
of participants in each group. A moderator guided the participants
through a discussion of various insurance-related topics in as relaxed an
atmosphere as possible (Krueger & Casey, 2000). After only relatively
few sessions, heterogeneous focus groups allow a level of information
saturation to be reached beyond which any repetition would make only
a marginal contribution. For this study, seven groups were sufficient to
meet these requirements (Liamputtong, 2011).
46
For most people, the topic of consumer protection in the insurance
context is quite an abstract one: each person has his/her own particular
view of it, but hardly anyone has a clear idea of what it means. Focus
groups are a way of overcoming this problem. The interaction between
the focus group participants is of key importance (Flick, 2007), and
group dynamics are decisive for the quality of the results (Flick, 2007).
The participants voice their personal opinions and ideas, which are then
commented and elaborated on by the other members of the group
(Krueger & Casey, 2000; Fern, 2001). In the process, the participants
are confronted with different perceptions, opinions and ideas, and
compelled to examine their own views more closely in the course of
the argumentation process. The group dynamics of the discussion
process make it possible for people to analyse, in a straightforward and
insightful manner, a topic they had previously given little thought to
in everyday life. In this way, focus groups can help to unearth many
different insights and blind spots (Morgan, 1988). The guideline for
the focus group discussions can be found in Appendix E.
Group dynamics enable the
topic of consumer protection to
be analysed in a straightforward
and insightful manner.
Phase II: Personal interviews
Phase II comprised the organisation and analysis of 81 semi-structured
personal interviews. The goal of this phase was to discuss in detail the
key findings of Phase I and to thoroughly understand the argumentation chains of consumers. Proceeding from this, the authors defined
and delimited different consumer types, and described them in detail.
Over a period of one month, 81 problem-centred, semi-structured
interviews were conducted with consumers from all over Switzerland.
Each interview lasted 45–60 minutes. The regional distribution and
age structure of the interviewees is shown in figure 3.
A total of 81 interviews were
carried out with participants
from all over Switzerland.
Fig. 3: Distribution of interviewees by age and region, % of those surveyed, n=81
20%
7
26
38%
7%
13
6
11
11
7
35%
aged 18–30
aged 31–40
aged 41–50
aged 50 and older
Semi-structured interviews provided a flexible way of getting
a detailed impression of the
interviewees’ opinions.
The authors decided to conduct semi-structured interviews as they offer
sufficient flexibility and grant the interviewees time and scope to voice
their own opinions, experiences and impressions of a specific topic
(Zhang & Wildemuth, 2009). Whereas the focus of each interview
varies according to the particular situation, it is strongly geared to a
previously developed guideline that addresses key issues and questions.
The interview guideline forms the framework for the interview, while
leaving the interviewer scope to focus more (or less) on particular issues
as the situation dictates, to pose follow-up questions and, therefore,
to follow the natural dynamics of the discussion (Ritchie & Lewis,
2003). For one thing, this makes it possible to gather very detailed information; for another, the interview guideline provides a standardised
framework that enhances the reliability of the data gathered and makes
it possible to compare data from different sources.
The interview guideline takes
account of various topics, such
as decision-making in the insurance context, the significance
of consultation, and consumer’s
knowledge and basic opinions of
insurance.
In order to gain as comprehensive an impression as possible of how the
interviewees deal with insurance-related matters and also to develop
criteria for determining different consumer types, each interview was
divided into six parts, which followed on from each other. After noting down the interviewees’ socio-demographic data, the interviewers
moved on to address general insurance topics. The goal was to gauge
the interviewees’ general opinions of insurance. This information was
used as a basis to talk about the decision-making process for insurance
products, the aim being to get an indication of how customers assess
the decision-making process and the conclusion of insurance contracts.
The third part of the interview focused on a closer analysis of the consultation process and customers’ perceptions of it.
48
The aim here was to use the interviewees’ statements to develop and
categorise key quality criteria for the consultation process. Building
on this, we investigated the aspect of the customers’ personal responsibility and ownership in an insurance relationship. Finally, we focused
on the interviewees’ knowledge of, and attitudes towards, insurance
(insurance literacy). We wanted not only to discover whether they are
insurance-literate, but also to understand what role consumers think
the state and the media play when it comes to insurance claims. For
more details, see the interview guideline in Appendix F.
Phase III: Online survey
In the final phase, the typology defined in the previous phases was validated and checked. To this end, the authors conducted a broad-based
online survey of 1,027 participants. The sample was the best-possible
reflection of the Swiss population, based on criteria such as age, gender
and education. Statistically, there is no variance between the sample
and the Swiss populace in terms of age and education. Table 8 shows a
comparison of the sample with the Swiss populace.
Table 8: Socio-demographic comparison of the sample with the Swiss
populace
% of population (FSO
2013/2014)
Feature
Breakdown
% of study
(I·VW 2015)
Gender
Men
Women
49%
51%
50%
50%
Age
56–65
46–55
36–45
26–35
18–25
18%
24%
22%
21%
15%
23%
22%
23%
23%
10%
Education
No school-leaving certificate
Secondary school, comprehensive,
junior high school
High school, apprenticeship
Swiss upper-secondary level
academic qualification
Higher vocational diploma
University of Applied Sciences and
Arts, Teacher training college
University
0%
12%
39%
9%
15%
1%
10%
36%
11%
19%
26%
22%
In Phase III, an online survey of
1,027 people was carried out;
the sample was representative
in terms of age, gender and
educational background.
Fig. 4: Overview of the socio-demographic data from the sample,
Gender
Region
50%
Age
average 47
9%
23%
23%
23%
22%
19
14
50%
9
20
aged 56–65
11
aged 46–55
18
aged 36–45
10
aged 26–35
aged 25 and
younger
Education
Employment
1%
Income
51%
12%
22%
58%
20%
19%
10%
16%
4%
d
/
g
e/
ye
nin
im e
me
plo
rai
-ti oyee art-t oye
t
l
l
m
In
P pl
Fu pl
lf-e
Em
Se
Em
University (of Applied
Sciences and Arts)
up to upper secondary level
no qualifications
41%
28%
ne
No
20%
no response
Figure 4 is a summary in graph form of the key socio-demographic data
of the sample. It should be noted that the income data are oriented
toward the upper and lower limits used by the Federal Statistical Office
in its household budget data analyses. The relevant limits are listed in
Appendix G, Table 17.
The online survey was based on
a standardised questionnaire.
The survey was conducted using a standardised questionnaire that
comprised a series of closed questions and response options covering
various aspects of insurance and consumer protection. The type of
online survey chosen for this study has the advantage that it can be
used to achieve a large sample flexibly, efficiently and in a relatively
short space of time (Euromonitor International, 2015). What is more,
the respondents are free to choose when they complete the survey and
how much time they devote to the task. The use of standardised questionnaires also enables comprehensive data capture, ensures a high level
of data comparability and makes that data accessible for quantitative
evaluation (Jick, 1979).
50
The online survey was divided up into several thematic blocks, which
fairly closely matched the topics and questions dealt with in the interviews. The authors analysed not only the respondents’ level of interest
in insurance matters, but also their information-gathering behaviour
and their feeling of ownership during the decision-making process.
Details of the respondents’ assessment of both their own need for protection and the necessity of state intervention in the insurance industry
were also recorded. The authors also touched on their behaviour when
claims arise, their knowledge of insurance and the significance of consultation. As far as possible, existing scientific scales were used for all
questions so as to ensure the validity of the questionnaire. A detailed
list of the questions and response options can be found in Appendix
G, Table 18.
The topics in the online survey
largely match the key points in
the interview phase.
The
4 insurance market
from the consumer’s perspective
4
4 The insurance market from the consumer’s perspective
–– More sophisticated insurance products and the ongoing digitalisation trend
are placing increasing demands on consumers in the insurance market.
–– These growing demands serve to make consumers more vulnerable.
–– Consumer vulnerability – the risk of making the wrong decisions or being
deliberately put at a disadvantage by insurance providers – is on the rise.
–– In order to define effective regulatory measures, it is essential to gain an
accurate picture of the customer journey.
Customers have rarely been under such pressure as they are today.
Whereas, about 25 years ago, the range of insurance products on offer
was still modest, insurers today do everything they can to set their
products apart from those of their competitors. As a result, consumers
can purchase the benefits that best suit their personal risk situation
and individual requirements. But the selection process demands that
consumers also have to take a much stronger interest both in their risks
and the benefits offered. Consumers have to make numerous decisions,
each with far-reaching financial consequences.
The growing trend towards
product differentiation in the
insurance market is placing
ever-increasing demands on
consumers.
Protection is one of our basic needs in everyday life. Nevertheless, few
consumers have a clear picture of what benefits insurance products
offer. Intangibility, and the time gap between the decision to purchase
insurance and the moment when benefits are paid, make it difficult
for consumers to get a feel for the value of their insurance cover. This
feeling of insecurity is exacerbated by additional factors, e.g. unresolved
problems with retirement pensions brought about by persistently
low interest rates and demographic trends, or rapidly rising costs for
healthcare and long-term care. A number of mistakes made in the past
by intermediaries and insurers have hardly served to build confidence,
and that has ultimately led to a pervading feeling of mistrust towards
the entire industry.
In the past, peculiarities of the
industry, market factors and
mistakes made by advisers and
insurance companies created
feelings of insecurity and mistrust among consumers.
The insurance industry is on the threshold of a fundamental change
process that is being driven by the increasing digitalisation of service
processes. From other industries, consumers are accustomed to using
digital channels to access their providers. In 1997, for instance, Credit
Suisse played a pioneering role in launching DirectNet, the company’s
comprehensive e-banking system with functions such as (custody)
account overviews, online payments, real-time stock-price information
and online trading (Furrer & Dietrich, 2012). To avoid being pushed
out of their home market by new competitors from other industries,
insurers are currently investing huge amounts in new access channels,
such as e-insurance platforms and apps. The changes gripping the
marketplace offer consumers ever more options to tailor their insurance
cover themselves and utilise new channels to reach their providers.28
The digitalisation of the insurance industry offers consumers
more options, but also makes
it more difficult for them to
navigate their way through the
marketplace.
28 See Maas and Bühler (2015) for more information on the digital transformation of the
insurance industry.
However, that also increases the level of complexity for consumers
when navigating their way through the marketplace. For example,
consumers who do not have the necessary IT skills or internet access
to take out insurance online run the risk of being unable to access the
market in its full breadth.
In order to analyse a consumer’s
vulnerability, it is essential to
have an exact knowledge of his/
her customer journey.
In order to find out whether consumers, or specific types of consumers,
are in need of protection, it is necessary to analyse their vulnerability,
and that means taking a closer look at the entire customer journey.
The term customer journey describes the path taken by a potential
customer along various contact points with a product or service, brand
or company (Holland & Flocke, 2014). This journey begins with the
customer becoming aware of the need for a particular type of insurance,
becomes more specific when the customer comes into contact with
insurers in the pre-sales or search phase, takes in the sales phase and
continues into the service phase. An exact knowledge of the customer
journey is essential to insurers (for reasons of strategy), and to the state
(for defining effective regulatory measures).
Consumer vulnerability arises
through the risk of making the
wrong decisions or being deliberately put at a disadvantage by
insurance providers.
Consumer vulnerability can be defined thus: “The condition in which
a consumer is at a greater risk of
–mis-selling,
–exploitation,
– or being put at a disadvantage in terms of accessing or using a service, or in seeking redress.” (British Standards Institution, 2010).
The vulnerability of consumers
in the insurance market depends
on individual, situation-specific
and market-specific factors.
Consumer vulnerability depends on individual or situation-specific
factors, e.g. lack of self-confidence, inadequate financial literacy or
limited financial means. However, market factors also play a decisive
part. These include the availability of information, the existence of a
functional competitive market and the fair treatment of customers.29
Consumers are vulnerable in the insurance market, too.
If consumers do not have enough information about possible risks and
the corresponding insurance benefits, they are likely to make the wrong
decisions. If they are offered unsuitable investment products, consumers may feel themselves to be exploited. If, during a consultation,
consumers are deliberately not informed about a product that would
better match their needs, or if they lack the financial means to defend
their interests in court, they will be at a disadvantage.
29 Further information on, in particular, consumer vulnerability in the face of individual and
situation-specific factors can be found in:
– Financial Conduct Authority (2015);
– Stearn (2012).
54
The partial revision of the Swiss Insurance Contract Act (VVG) and the
new Federal Financial Services Act (FIDLEG) are designed to enhance
consumer protection. However, new regulations lead not only to higher
costs – at least part of which consumers must finance through higher
taxes or premiums – but also to restrictions on their freedom to make
decisions in the marketplace. In order to create the most effective and
efficient system of consumer protection possible, we have to understand
how consumers move in the insurance marketplace and what factors
make them more vulnerable. To this end, we will analyse in the following chapters: 1) how interested consumers are in the topic of insurance,
2) what they know about insurance, 3) how they gather information
in the insurance market, 4) how they reach decisions about insurance
products, and 5) how insurance customers perceive advisory activities
and its providers.
Regulatory measures on consumer protection must increase
the net benefit for consumers.
To this end, it is necessary to understand how consumers move
in the insurance marketplace.
4.1 How interested are consumers in insurance?
–– Consumers’ level of involvement in the decision-making process is
relatively high, but declines rapidly once they have made the decision for a
particular product or service.
–– The low level of involvement over the long term can be explained by
behavioural theory. Consumers’ actions tend to have a short-term focus.
The value of insurance, however, tends only to become tangible in the long
term. A feeling of mistrust toward the insurance industry is another factor
weakening long-term involvement.
–– A lack of involvement can lead to a strongly simplified decision-making
matrix and inadequate reflection on the consumer’s part.
–– Various aspects can promote involvement. These include the acquisition
of knowledge and insurance literacy, a reduction in the risks associated
with a purchase, and an increase in the industry’s attractiveness through
expanded services and functions.
If, in a particular situation or over the long term, a consumer shows
an interest in something – which may be a product, service or an
industry – this is termed “involvement”. Involvement is a “targeted
way of activating the consumer to seek out, absorb, process and store
information” (Trommsdorff, 2004). Situation-specific involvement is
given when a consumer’s interest in something increases or declines
depending on the situation. If your car breaks down and you have to
get to a meeting, your level of involvement at that moment as regards
breakdown assistance insurance will be very high. With reference to
the decision-making process, a distinction is made between “low involvement decisions” (LID) and “high involvement decisions” (HID)
(Tanner & Raymond, 2012). An LID exists when consumers reach
decisions relatively spontaneously and without engaging in lengthy
research, e.g. when deciding to have a coke with lunch. In such cases,
impulses, triggered e.g. by advertising, or simple habits are decisive
Owing to their complexity and
the consequences of making
the wrong decision, insurance
products belong to the “high
involvement decision” category.
factors. Things are different, however, with HIDs. The risks of making
the wrong decision are higher with HIDs, which are generally complex
and involve high costs. Accordingly, insurance products belong to the
HID realm.
Only 31% of consumers take a
long-term interest in insurance
matters.
As figure 5 shows, the data collected also confirm the high involvement
in the decision situation. 67% of consumers say they pay close attention when amending previous, or concluding new, insurance policies.
However, only 51% of consumers consider insurance products to be
of high or very high relevance. The assessment is even worse when consumers are asked about their general interest or long-term involvement
in insurance matters. Only 31% of consumers take an active long-term
interest in insurance, regardless of whether they currently need to make
an insurance-related decision. By contrast, 42% of respondents show
no long-term interest. Even when making decisions, 18% of consumers
do not take an interest in the topic. They are strongly dependent on an
adviser and do not feel in a position to decide autonomously.
Fig. 5: Consumer involvement, % of those surveyed, n=1,027
fairly low
Involvement in insurance decision
5
6
neutral
7
15
fairly low
Relevance of insurance products
5 6
fairly high
10
19
neutral
27
fairly low
Interest in insurance matters
11
14
23
25
fairly high
17
17
neutral
17
27
18
fairly high
16
8
7
If consumers are divided into two groups according to their level of
involvement – low involvement decision (LID) and high involvement
decision (HID) – we can examine the differences in vulnerability between them. Figure 6 shows these differences.
56
Fig. 6: Autonomy preference between LID and HID, % of those surveyed, n=1,027
Statement 1: I am in a position to make autonomous routine decisions with regard to my insurance.
(1; strongly disagree – 7; strongly agree)
Statement 2: When I take out new insurance policies, I should not make any of the decisions myself.
Statement 3: I should follow the advice of my adviser even when I do not agree with it.
Statement 4: My adviser should make important decisions about my insurance, not me.
Statement 5: If there were to be a fundamental change in my personal circumstances,
I would prefer my adviser to take a more active role in the decisions to be made.
Statement 6: My adviser should decide how often my insurance requirements need to be reviewed.
Statement 1
Statement 2 Statement 3 Statement 4 Statement 5 Statement 6
4.00
6.50
6.00
5.89*
5.62
5.50
5.00
4.50
4.84 *
Agreement from low to high (1–7)
Agreement from low to high (1–7)
7.00
3.40
3.50
3.45
3.32
3.23
3.06
3.00
2.50
*
2.51
2.00
2.22
2.05*
2.43
2.29
2.16 *
3.16
2.38 *
2.17
2.00 *
1.50
HID-confidence interval
HID mean
interval LID
LID mean
Overall mean
The members of the LID group consider themselves to be considerably
less able to make autonomous decisions and are thus reliant on the
advice of others. Even when they disagree with the advice they receive,
they still tend to follow it. The differences are no longer significant,
however, when the adviser proactively makes suggestions or checks up
on the customer’s insurance requirements from time to time. That is
probably because this group is not prepared to devote additional time
to insurance matters during the relationship phase.
According to behavioural theory,
the preferences of consumers
systematically violate the axioms
of expected utility theory.
The low level of long-term involvement is surprising. Although security
is a fundamental need of consumers, the majority of them consider
insurance to be at most a secondary concern. In order to explain this
discrepancy, we need to refer to behavioural theory. Economic theorists
have traditionally considered consumers to be rational beings. It was
assumed that they made full use of the information available to them
and chose those products and services that maximised their welfare
in the long term. In reality, however, consumers often do not act in
the manner traditional economic theory would expect them to. Consumers postpone decisions although that results in disadvantages for
them; they are led by their emotions or make short-term decisions. As
early as 1979, researchers established that the observed behaviour of
consumers systematically violated the axioms of expected utility theory
(Kahnemann & Tversky, 1979).
Consumers tend to make
short-term decisions. They underweight the long-term utility
of an insurance contract.
Behavioural theory thus offers possible explanations for the phenomenon of low involvement. According to prospect theory (see Barberis,
2013), consumers tend to make short-term decisions. Reaching a
decision depends on the extent to which the status quo is changed
for better or worse and not on any long-term maximisation of utility
that the traditional theories espouse (reference dependence). If the
utility of an insurance contract is reduced to compensating losses, the
compensation will generally occur at some remote point in the future.
Although the consumer derives long-term utility from the insurance,
in the short term he/she incurs regular costs in the form of premiums.
If the consumer tends to act with short-term goals in mind, that minimises the net utility of the insurance. Consequently, the consumer’s
involvement is lower.
Playing on people’s fear of loss
and highlighting the risk of accidents leads to situational, rather
than long-term, involvement.
According to the theory of loss aversion, losses have a stronger impact
on consumers than gains in the same amount. The insurance industry
makes use of this phenomenon mainly when communicating with
customers. By highlighting potential losses in its advertising, it kindles
fears and heightens customer involvement, at least temporarily. A good
example of this was the advertisement of US insurer Nationwide aired
during the 2015 Super Bowl: a small boy is shown cycling, sailing,
flying over the landscape and getting a kiss on the cheek from the little
girl behind him on the school bus. All the while he tells us that he will
never be able to experience all these wonderful things because he lost
his life in an accident.30 But an undesired effect of selling insurance
by playing on people’s fears is that insurance is then associated with
damage and loss rather than security and protection. Of their own
accord, consumers do not tend to want to spend time thinking about
the risks of everyday life, such as illnesses, accidents or theft. As a rule,
30 The advertisement can be found at:
www.sicher-leben.de/versicherungs-werbespot-sorgt-fuer-empoerung
58
they would rather devote time to the upsides of life, not the downsides.
That is why their involvement hardly ever lasts over the long term.
Low involvement weakens the position of consumers in the insurance
market, both when making insurance decisions and during the insurance relationship. When making insurance decisions, LID consumers
are much less able to reach the decision on their own and are more
reliant on the support of an adviser. If consumers are not interested
in insurance matters, they are less able to grasp the consequences of
the decisions they make. This, in turn, has an impact on the time and
research effort consumers are willing to invest in the decision-making
process (Mishra & Kumar, 2012). They prefer simple decision-making
matrices, which often culminate in a mere comparison of prices; or they
fail to reflect on the advice given by their advisers.
Consumers that are not
interested in insurance matters
are less able to grasp the consequences of their decisions. This
leads to simple decision-making
matrices and a failure to reflect
on the advice they receive.
If the consumer’s personal involvement during the insurance relationship is low, he/she will generally hardly think about insurance. This is
attributable to the fact that there are only few events that activate the
consumer, e.g. close friends or family rarely suffer any losses or damage, young people take hardly any interest in pension insurance, and
virtually the only contact people have with their insurer is when they
receive their annual premium invoice. As a result, decisions are rarely
called into question once they have been made. Even when there is a
change in consumer’s personal circumstances or risk situation, they
neglect to adapt their insurance cover accordingly.
A lack of involvement during the
relationship phase means that,
once made, decisions are rarely
reviewed, even when there has
been a change in the consumer’s
personal circumstances or risk
situation.
4.2 What do consumers know about insurance?
–– In Switzerland, the financial literacy of consumers is comparatively high;
and yet, around one-third of those surveyed have major knowledge gaps.
–– Deficits in financial literacy are particularly evident among consumers who
are young, poorly educated or female.
–– In order to minimise the vulnerability caused by this lack of knowledge,
investments can be made in educating these groups, or the requirements
of the decision-making process could be lowered for them.
Financial literacy is seen as a key prerequisite for making informed
decisions in the financial markets (see Brown & Graf, 2013). According
to a Bertelsmann Stiftung study entitled “Finanzieller Analphabetismus
in Deutschland: Schlechte Voraussetzungen für eigenverantwortliche
Vorsorge” [Financial Illiteracy in Germany: Unfavourable Conditions
for Autonomous Retirement Planning], poor financial literacy can,
among other things, cause consumers to:
Financial literacy is a key prerequisite for making informed
decisions.
– enter into life/pension insurance policies or savings contracts that
are not suited to their individual circumstances;
– accept the advice of bank and insurance experts without critical
examination;
– exhibit very low levels of involvement in financial topics. (Leinert,
2004)
Various connections with financial literacy have already been shown for
Switzerland, e.g. that consumers with above-average financial literacy
are more likely than not to have Pillar-III pension products, investment
accounts and mortgages (see Brown & Graf, 2013).
Thus far, little research has been conducted into the effects of financial
literacy on consumer behaviour in the insurance market. However, it
can be said that higher financial literacy tends to increase demand for
insurance products (Hecht & Hanewald, 2010; Cappelletti, Guazzarotti & Tomasino, 2013). And yet, higher rates of financial literacy do not
necessarily imply a better knowledge of insurance products (Olapade
& Frölich, 2012; Cai & Song, 2013). Even if financial literacy has no
direct influence on consumer’s understanding of the products, we can
assume that higher financial literacy simplifies their decision-making
processes – because insurance decisions often entail calculations and
comparisons of costs and utility over long periods of time (Carpena,
Shawn, Shapiro & Zia, 2011; Olapade & Frölich, 2012).31
Educating consumers is a key
objective of consumer protection in the European Union.
Since their implementation, preventive measures to educate consumers
have been a key element in improving consumer protection.32 In recent
years, wide-ranging research and education programmes have been
launched to promote the financial education of consumers (Goldsmith
& Piscopo, 2013). The initiatives include a training programme for
schoolchildren aged 15 to 18 (Europa Diary), training sessions for
consumer protection authorities aimed at empowering consumers
(TRACE), courses for master’s students, and an online consumer education platform (DOLCETA) (Goldsmith & Piscopo, 2013).
In Switzerland, too, a number
of financial education projects
were launched, the main aim of
which was to provide teaching
materials.
As part of the 2005 OECD study “Improving Financial Literacy”,
projects aimed at enhancing financial literacy were carried out in
Switzerland, too. In 2006, an education platform was established – as a
joint venture between Investor’s Dialogue GmbH (a private company)
and the Department of Banking & Finance of the ZHAW School of
Management and Law – a particular purpose of which was to promote
research into financial literacy. One year later, the Swiss National
31 For further information see Pradhan (2014).
32 See summary of EU consumer protection legislation (EU Article 153) at http://eur-lex.
europa.eu/legal-content/DE/TXT/?uri=URISERV:a17000 unter http://eur-lex.europa.eu/
legal-content/DE/TXT/?uri=URISERV:a17000
60
Bank created Iconomix33, a digital economic education programme.
Although accessible to anyone, it is primarily intended for use by upper
secondary school students. In addition, in 2010 the Swiss Federation
for Adult Learning joined the FinLiCO34 initiative launched by the
European Commission, the aim of which is to improve the general
financial literacy of adults with little or no prior knowledge of finance.
Another programme is Fit for Finance, which was only recently completed.35 It focuses on financial literacy among young people involved
in apprenticeships and vocational training. The project was financed
by BCH Berufsbildung Schweiz (a Swiss vocational training organisation), the Swiss Federal Institute for Vocational Education and Training
SFIVET, and Primecoach AG. None of these initiatives, however, is
aimed specifically at promoting insurance literacy. A knowledge of the
potential risks of everyday life and how consumers can best protect
themselves against them is indispensable when trying to encourage
consumers to deal with their personal finances in an informed and
holistic manner at specific points in their life.
In recent years, the collection of financial literacy data has been broadly
standardised, with respondents being asked three to five basic questions
on interest rates, inflation, the time value of money, purchasing power
and the risks of various investment categories.36 The last of these has
been omitted in the present study owing to our focus on the insurance
industry. Basic financial literacy is relatively high in Switzerland. Figure
7 shows that, on average, 63% of respondents answered the questions
correctly. The respondents understood inflation best, with 70% giving
the correct answer to that question. Financial literacy was lower for the
questions on interest rates (62%) and purchasing power (66%). Only
53% of those surveyed were able to correctly answer the question on
the time value of money.37 This is hardly surprising, given that considerations of this kind are relatively removed from everyday life.
33 Information on the project can be found at: www.iconomix.ch
34 Information on the project can be found at: www.alice.ch/de/sveb/projekte/ abgeschlossene-projekte/foerderung-von-wenig-qualifizierten/finlico
35 Information on the project can be found at: www.fitforfinance.ch
36 See, e.g., Lusardi & Mitchell (2011)
37 A realistic, positive interest rate is assumed.
Financial literacy in Switzerland
is relatively high compared with
other countries.
Fig. 7: Financial literacy, % of those surveyed, n=979–990
Q1: Imagine you had CHF 100 in your savings account and it earned 20% interest
per year. You leave the money in your account for five years. What would your
account balance be at the end of that period?
Q2: Imagine you earn 1% interest on your account and inflation is 2% per year.
How much would you be able to buy with the money on your account after one
year?
Q3: Let’s assume a friend of yours inherits CHF 10000 today and his cousin
inherits CHF 10,000 in three years’ time. Who is richer because of their
inheritance?
Q4: Imagine your income were to double in 2016 and all prices doubled as well.
How much would you be able to buy with your income in one year’s time?
Q1: Interest rates
Q2: Inflation
30%
38%
62%
Q3: Time value Q4: Purchasing power
of money
47%
70%
53%
34%
66%
Correct answer
Incorrect answer
When drafting consumer protection measures, we absolutely
have to take account of the
fact that about one-third of the
population lacks basic financial
literacy.
68% of respondents answered at least three of the four questions correctly. Similar results were achieved in a study in the Netherlands in
2006 (van Rooij, Lusardi & Alessie, 2011). Studies of financial literacy
in Switzerland also reveal high average levels among the population
(Brown & Graf, 2013). Although Switzerland has not initiated any
national strategies for improving financial literacy, thus far the country exhibits no deficits compared with the countries of the European
Union that surround it. Habschick, Seidl and Evers (2007) examined
the financial education initiatives of the 27 EU member states. In the
case of Germany, for instance, the majority of initiatives were geared
to financial education in schools. It is quite possible, therefore, that the
effects of past financial education initiatives in the EU will only begin
to reveal themselves gradually. Although the financial literacy figures
look good in comparison, figure 8 shows that around one-third (32%)
of those surveyed correctly answered at most two of the four questions
posed. When drafting consumer protection measures, we must take
account of the fact that about one-third of the population lacks basic
financial literacy.
62
Fig. 8: Financial literacy, % of those surveyed, n=70738
Literacy
Score
1 P.
1 7%
2 points
24%
3 points
4 points
37%
31%
The study revealed significant correlations between financial literacy,
on the one hand, and gender, age, education and income, on the other. These are shown in figure 9. Financial literacy is higher for topics
such as interest rates, inflation and the time value of money 1) when
the respondent is a man, 2) the older the respondent is, 3) the higher
the respondent’s level of education, and 4) the higher the respondent’s
income. The question regarding purchasing power exhibits a less
pronounced correlation, or none at all, with the factors mentioned.
Deficits are thus more evident among consumers who are young, poorly
educated or female.
38 In order to enhance comparability with similar studies, those who failed to answer at least
one question were eliminated from the analysis.
Financial literacy depends on
gender, age, education and
income.
Fig. 9: Financial literacy in relation to various factors,
% of those surveyed, n=979–990
Gender
Interest
rates
Inflation
75
81
Age
49
60
Education
73
61
63
55
54
37
84
77
69
60
50
43
64
56
48
46
48
39
Time
value of
money
58
48
Purchasing
power
65
67
57
69
67
69
68
M
W
56
–
65
yrs
46
–
55
yrs
36
–
45
yrs
26
–
35
yrs
18
–
25
yrs
A big knowledge gap between
adviser and customer makes it
more difficult to hold a focused
discussion, has a distancing
effect for the customer, and
provokes the adviser to exploit
the situation.
52
Income
75
60
69
73
68
78
83
53
53
60
45
57
62
65
61
78
66
66
67
50
55
67
75
91
Mini- Upper Higher University low medium high
mum secon- voca- (of Applied
schoo- dary tional Arts and
ling schoo- schoo- Sciences)
ling
ling
If consumers are to successfully navigate the insurance marketplace, a
key prerequisite is a knowledge of their personal risks and of the opportunities the market offers to minimise or manage those risks. If they
lack this knowledge, consumers either refrain from entering the market
in the first place – because they set themselves different priorities – or
they enter the market and are easily manipulated. In a consultation
situation, a significant knowledge gap:
– makes things more difficult, as the consumer is not able to reflect
on his/her own needs prior to the consultation;
– has a distancing effect, as the consumer finds it unpleasant talking
to experts when his/her basic knowledge of the topic is insufficient;
and
– provokes the adviser to sell products that maximise his/her own
commission, as the average consumer is virtually unable to reflect
on the latter’s proposals during the consultation.
64
4.3 How do consumers gather information in the insurance
market?
–– The amount of effort that consumers put into gathering information tends
to be high at the time of a decision but decreases rapidly afterwards. They
rarely assess their own risk situation unless their personal circumstances
change dramatically.
–– They do their research by both digital and conventional means. Their main
access channels are their own personal insurance agent, independent
comparison services and insurance provider internet sites.
–– They conduct their research both offline and online, but still buy principally
offline.
–– As digital access channels are continually gaining in significance, the
information available on the internet must be checked to see whether it is
adequate for making an informed decision.
Consumers need information to understand their risks, to familiarise
themselves with various providers and evaluate their offers, to consider
information from third parties, to conclude the contract, to register
changes to their risk situation, to react appropriately when making
an insurance claim and to defend their rights. In short, the customer
journey is based largely on information. Consumer behaviour when
seeking information depends on the information available, that is,
on the effort needed to research, process and request information.
This depends on consumer’s personal preferences and involvement.
Studies indicate that highly involved consumers are very likely to rely
on more than one source of information (Alexander, Jones & Nigro,
1997) and process information more thoroughly (see Gensch, Javalgi,
& Rajshekhar, 1987).
Information-gathering behaviour
depends on the effort needed
to research and process information.
Depending on their preferences and level of involvement, consumers
either gather information actively and on their own or they go about
it passively and let it come to them. Those surveyed tend to be prepared to put a lot of effort into research while making their decision.
As figure 10 illustrates, 66% state that they actively compare various
offers when they want to take out insurance. This is indicative of a
functioning market.
The research effort in the
decision phase tends to be high,
while in the relationship phase it
tends to be low.
Fig. 10: Research effort according to phase of Customer journey,
fairly low
Research effort in the decision phase
6
6
neutral
7
fairly high
15
18
fairly low
Research effort in the relationship phase
15
15
21
27
neutral
13
20
fairly high
17
9
11
Greatly declining involvement in the relationship phase is once again
evident here, however. Only 37% of consumers compare current contracts with new offers and 43% say they rarely do.
The research phase is largely
initiated by changes in the life of
the consumer.
The consumer has to be activated to initiate the search process. This can
occur slowly and more or less subconsciously through various triggers
such as classical advertising, or consciously through specific events. As
involvement is rather low in the relationship phase, it can be assumed
that consumers are activated by specific events in their lives. As figure
11 shows, changes in the lives of consumers are the primary driver for
49% of those surveyed to reassess their risk situation and possibly make
changes to their insurance. New offers or lower prices are seen as the
primary driver by 13% of consumers. Dissatisfaction with their existing
insurance drives only 15% of those surveyed to informing themselves
about offers on the market. Events in the lives of friends and family play
hardly any role at all. However, this does not allow any inferences to be
drawn about individual events in the lives of friends or family. Whereas
involvement due to events in the lives of the near and dear is high, on
the whole such events are rare and therefore do not play much of a role.
In an above-average number
of cases the search for life
insurance is initiated by changes
in the personal circumstances
of the consumer. For health
insurance, offers on the market
play a greater role.
When it comes to activating consumers, there are some differences
among insurance lines. Life insurance tends to come to the attention
of consumers when their personal circumstances change, e.g. when they
start a family. Health insurance, on the other hand, tends to be changed
when there are new, attractive offers on the market. Price sensitivity is
most pronounced for health insurance while the proactive behaviour of
a customer adviser does not play much of a role for this insurance line.
66
Fig. 11: Events that activate consumers, by insurance line,
49%
49%
Change of personal circumstances
43%
More favourable pricing
13%
12%
10%
Attractive new insurance packages
13%
11%
13%
Proactive advice
4%
19%
17%
8%
9%
10%
8%
9%
7%
8%
Dissatisfaction with the service
7%
8%
Dissatisfaction with claims handling
procedures and results
Friends or family
54%
5%
6%
2%
2%
1%
2%
Consumers may have been frightened away by shady call centres that
in recent years have used aggressive telephone tactics in an attempt to
acquire customers. For this reason consumers may react sensitively to
proactive behaviour by consultants.
Information can be obtained from a large variety of sources. A distinction is frequently made between online and offline sources. There
are now numerous new digital sources of information. Consumers
can compare prices, read customer experience reports and product/
providers ratings, and obtain information from consumer protection
associations. However, as can be seen in figure 12, the main sources of
information are still direct, offline access channels.
Total
Property insurance
Life insurance
Health insurance
Offline information sources still
play a central role. However,
internet sites of providers and
independent online comparison
services already account for a
significant share of the information available.
Fig. 12: Sources of information when taking out insurance (top access channels),
Offline indirect
Offline direct
Personal contact (insurance agent)
37%
Personal contact (broker)
20%
Call centre
16%
Personal contact (bank adviser)
15%
Friends, family, employer
24%
Consumer publications
13%
Retailer
3%
Classical advertising
3%
Online
Independent comparison service
33%
Internet site (insurance provider)
29%
Social Media
Insurance apps
5%
3%
37% of those surveyed name the personal contact to their insurance
agent as their main access channel to information. 20% name the
contact to their broker as their main source, 16% the contact to an
impersonal call centre and 15% to a bank adviser. Other important
offline access channels are friends, family and employers (24%) along
with consumer publications (13%). In contrast with other countries,
retailers do not play much of a role in providing information in Switzerland. But online access channels have really established themselves,
too. Independent comparison services such as Comparis are used by
about a third of consumers as a major source of information. The internet sites of providers are also one of the main places for consumers
to go when seeking information (29%). Social media and apps, on the
other hand, do not play any significant role yet.
The interaction between customer and insurance provider
will shift largely to digital access
channels.
One of the most sweeping changes in recent years is the increasing
digitalisation of the interaction between consumers and providers.
figure 13 illustrates this trend. By 2020 providers expect customers to
communicate with their insurance providers digitally at all stages of the
customer journey (Maas & Bühler, 2015). Insurance managers expect
44% of advisory volume to be turned over digitally within five years.
Not only the need for advice irrespective of time and place, but also
customers’ need of peer advice plays a role in this shift.
68
Fig. 13: Proportion of customers preferring online/offline access in 2020 from
the perspective of insurance managers (Maas & Bühler, 2015)
Gathering information
online
Changing personal data / contract
online
Making / processing claim
online
Requesting offer / concluding contract
online
Obtaining advice
online
0%
73%
offline
68%
offline
56%
offline
54%
offline
44%
20%
40%
offline
60%
80%
100%
Online: internet site, app, e-mail, video conference, social media, chat applications, communities
Consultation in the branch office or at customer’s, telephone, letter
Traditional communication channels will not be entirely replaced by
new ones, however. Digital communication channels complement what
is currently on offer. As the virtual world is increasingly becoming a part
of normal life, in future customers will no longer differentiate between
online and offline. They will avail themselves of the access channel that,
in the situation they find themselves in at the time, they consider to the
most efficient and effective for meeting their current need or solving
their current problem. They can and will certainly change this access
channel within an ongoing dialogue, but they always expect any information they have already provided to the company to be available at
all times. Unsurprisingly, young consumers tend to trust digital access
channels and third parties such as family and friends, while older consumers seek the advice of insurance companies and financial advisers
(Swiss Re, 2013). However, we expect this to turn out to be a cohort
effect and not an age effect.
Customers will avail themselves
of the access channel that, in the
situation they find themselves in
at the time, they consider to the
most efficient and effective for
meeting their current need or
solving their current problem.
The choice of access channel for gathering information is also independent of the choice of access channel for concluding the contract.
Six types are distinguished here (Elliot, Fu & Speck, 2012):
A majority of consumers conduct research by means of both
offline and online access channels. However, contracts are still
largely concluded offline.
–
–
–
–
–
–
Pure offliners: Search offline; buy offline
Pure onliners: Search online; buy online
Cross-channel offliners: Search online; buy offline
Cross-channel onliners: Search offline; buy online
Dual-search offliners: Search online and offline; buy offline
Dual-search onliners: Search online and offline; buy online
Figure 14 breaks information-gathering and the conclusion of the
contract down into six types. Of those surveyed, 77% concluded their
contract offline while 23% did so online. 25% of respondents moved
exclusively in the offline world, i.e. they informed themselves offline
and concluded the contract offline. 49% did their research both offline
and online before taking out insurance offline. When insurance was
taken out online, it was also more common for respondents to obtain
their information in both the offline and the online worlds (16%).
Only 5% of those surveyed exclusively chose online access to the topic
of insurance. Changing access channels from exclusively online research
to offline conclusion or from exclusively offline research to online conclusion hardly ever occurs, however. Recently much discussed ROPO
behaviour (research online – purchase offline)39 can thus more accurately be described as ROOPO behaviour (research online & offline
and purchase offline).39
Fig. 14: Change in access channel between information-gathering and taking out
insurance, % of those surveyed, n=94340
Information gathering
Conclusion of contract
Offline
25%
2%
Offline
(77%)
49%
Offline
&
Online
16%
Online
(23%)
2%
Online
Most insurance is taken out
through a tied insurance agent.
Health insurance is more frequently taken out directly over
the internet, life insurance more
frequently through a broker.
5%
The tied insurance agent continues to play a major role when taking
out insurance products – in every insurance line. As can be seen in figure 15, more than half of all contracts are concluded this way. For the
other access channels, however, there are significant differences among
insurance lines. Health insurance is often taken out over the internet
site of an insurance provider (19%). In contrast, brokers play a greater
role for life insurance (18%).
39 See further information on ROPO at: Maas, Schlager, Steiner & Taborelli (2014)
40 Persons who indicated that they rarely do research were excluded.
70
10% still take out insurance by telephone while 7% of respondents
use an online comparison service. In Switzerland, consumers do not
take out insurance through a bank or retailer, as is frequently the case
in other countries. Consumers still do not think of using an app as a
way of taking out insurance. The reason for this, however, is that up
hardly any such apps.
Fig. 15: Relative significance of access channels in personal lines business,
55%
56%
55%
52%
Insurance agent
Website
10%
19%
10%
11%
Telephone
8%
8%
7%
7%
6%
7%
Online comparison service
11%
9%
Broker
10%
Bank adviser
16%
16%
18%
1%
1%
2%
1%
0%
0%
App 0%
1%
0%
Retail distributor 0%
0%
0%
Total
Property Insurance
Life insurance
Health insurance
The vulnerability of consumers is dependent on the variety of sources
of information used and on the information available. It can generally
be assumed that the more sources of information used to make a decision, the more likely an independent and informed decision will be
made. If the consumer makes a decision based solely on one source of
information, e.g. a price comparison site or personal consultation, the
possibility of manipulation is great.
The more sources of information used to make a decision, the
more likely an independent and
informed decision will be made.
In order to reduce the vulnerability of consumers, information
tailored to their needs must
be made available to them by
means of various formats and
access channels.
Nonetheless, more information is not per se beneficial for consumers.
Traditional economic theories assume that additional information can
never have any negative effects, but this ignores the fact that too much
information can lead to inefficiency when gathering information, and
irrelevant or even contradictory information can cause doubt and
confusion (problem of information overload, see also Chapter 2.3; see
also Goyder & Brooker, 2007). The effort involved in gathering and
processing information is decisive in the end. Consumers must be able
access information and enhance their knowledge quickly and efficiently
according to their personal needs. In order to reduce the vulnerability
of consumers, information tailored to their needs must be made available to them by means of various formats and access channels. Despite
the many new digital means of presenting information, this does not
yet seem to have succeeded. In the US a study showed, for instance,
that young consumers tend to associate the word “agent” more with
the FBI, “protection” with birth control and “policy” with general rules
rather than with insurance (Douglas, 2010).
4.4 How do consumers choose their insurance?
–– Assessing your own risk situation, deciding how much risk to take on and
finding a corresponding insurance product is a complex process. Consumers often simplify this process, sometimes radically.
–– Consumers themselves perceive that they are in a position to make their
own decisions and are convinced that they have sufficient control in the
market.
–– Although, in general, Swiss consumers are prepared to assume responsibility for their actions, account must be taken of the fact that some of them
are not. Various reasons cause this group to rely strongly on the people or
institutions providing advice.
The decision for an insurance
product is complex and is
often accelerated by the use of
heuristics.
The decision-making process of the consumer generally depends very
much on the complexity of the service and the risk of making a wrong
decision. There is not much of an information-gathering and decision-making process when buying food, as a lot of experience generally
makes the decision easier. The decision for an insurance product is more
complex and often requires a conscious information-gathering and
decision-making process. Strictly rational decision-making processes
by consumers are rare, however. Consumers often use simplification
(known as heuristics) to accelerate decision-making processes and reduce research costs even at the risk of making poorer decisions.
Procrastination, the postponing
of decisions, exists for complex
products.
In the real world, consumers often display behaviour that contradicts
utility maximisation (Simon, 1982). Smaller, short-term gains are
preferred to greater, long-term ones or decisions are postponed despite
a tangible need. Everyone knows this from his/her own experience, for
72
instance, when an unpleasant visit to the dentist is postponed although
you know you have cavities. This can also be the case for life insurance
(SwissRe, 2013). Here the complexity of the product and the lack of
understanding of the purchasing process make the decision-making
process more difficult. Consumers get the feeling of not being equal to
the requirements of the purchasing process and are afraid of making a
wrong decision. This emotional stress situation can lead to postponement of the purchase or even abandonment of the decision-making
process. In behavioural economics, this phenomenon is referred to as
procrastination (Steel, 2007).
To get a closer look at the decision-making process for insurance, we
first analysed the amount of freedom of choice in the market from the
perspective of consumers. The perceived control of consumers, i.e. the
extent to which they feel they are in control of the situation, was also
analysed. For the first three factors, respondents were asked to judge the
market in general. 60% and 62%, respectively, are of the opinion that
consumers have it within their control to find a good solution for their
risks. 52% of respondents state that they are treated as equals when
interacting with their insurance provider. However, in comparison, this
was the lowest value, which could be an indication that the quality of
the advice was inadequate. With the final factor, consumers were asked
to say whether they also assume personal responsibility for their actions
in the insurance market. There was even more agreement here. 68% of
those surveyed are of the opinion that they themselves as consumers are
responsible for obtaining the best insurance benefits for their money.
The majority of those surveyed
is convinced that they can act on
their own responsibility in the
market and want to do just that.
It is mostly in complex decision-making situations that consumers are
willing to delegate decisions to a certain degree to an expert. The willingness to delegate decisions depends on several factors, which figure
16 illustrates. One the one hand, this willingness can be attributed to
personal preferences. When purchasing electronic devices such as a
mobile phone, for example, there are consumers who prefer to go to a
shop for advice because they find it convenient or because they want
to reduce the perceived purchase risk.
The willingness to delegate or
to get involved in a decision
depends on the personal preferences and abilities of consumers.
Fig. 16: Perceived control, % of those surveyed, n=1,027
Factor 1: As a customer I can do a lot to get the best insurance benefits for my money.
Factor 2: With enough effort I can get very good insurance benefits for my money.
Factor 3: If I take an active part in discussions with an insurance provider, I can exert a lot of influence as
a consumer.
Factor 4: In the end, as the consumer, I am responsible for obtaining the best insurance for my money.
fairly low
Factor 1 2 5
neutral
9
6
5
8
fairly low
Factor 4 2 3
7
27
26
fairly low
Factor 3
neutral
26
neutral
21
16
21
14
fairly high
25
10
18
fairly high
neutral
fairly low
Factor 2 2 3
fairly high
26
24
11
15
fairly high
23
22
23
Other consumers prefer to gather information about product features
via the internet and to read consumer opinions and order online. On
the other hand, consumers may delegate decisions only because they
personally do not feel they are in a position to make decisions on their
own. To take the example of the mobile telephone, the consumer may
not find enough information, the information may not be sufficiently
comprehensible or the purchasing process may be too complex.
Only 10% of those surveyed
have an API lower than 50
points and feel incapable of making a decision themselves.
The Autonomy Preference Index (API) (Ende, Kazis & Ash et al., 1989)
measures the preferences of consumers with regard to their involvement
in the decision process. A high API means that consumers feel capable
of deciding themselves and do not feel they have to rely on the decision
of a third party such as an insurance agent.
74
Fig. 17: Autonomy Preference, % of those surveyed, n=1,027
API: Autonomy Preference Index – the ability to make one's own decisions
Factor 1: My adviser should make important decisions about my insurance, not I.
Factor 2: I should follow the advice of my adviser even when I do not agree with it.
Factor 3: If there were to be a fundamental change in my personal circumstances, I would prefer my
adviser to take a more active role in the decisions to be made.
Factor 4: My adviser should decide how often my insurance requirements need to be reviewed.
Factor 5: When I take out new insurance policies, I should not make any of the decisions myself.
Factor 6: I am in a position to make autonomous routine decisions with regard to my insurance.
low
fairly high
very high
API
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
neutral
…high
12
4 22
neutral
…high
fairly low
48
Factor 1
20
11
fairly low
Factor 2
20
43
fairly low
21
Factor 3
15
15
14
20
12
fairly low
Factor 6
neutral
53
2 2 5
16
12
8
12
fairly high
neutral
17
5
fairly high
fairly low
Factor 5
8
neutral
16
27
21
fairly high
24
12
6
15
neutral
fairly low
Factor 4
13
25
Only 10% of those surveyed have an API lower than 50 points and
feel incapable of making a decision themselves. Figure 17 shows the
autonomy of respondents with regard to certain factors. 80% (Factor
1) of those surveyed do not want to leave decisions to their insurance
adviser. 79% (Factor 6) feel capable of making decisions themselves.
28% (Factor 3) of respondents could only imagine greater involvement
of the adviser in a review of their current risk situation. 25% (Factor 4)
37
7
4
fairly high
6
3 3
of those surveyed also think it makes sense for the insurance adviser
to determine how often their insurance coverage should be reviewed.
The willingness to delegate or
to get involved in a decision
depends on the personal preferences and abilities of consumers.
The vulnerability of consumers is not directly related to their willingness to delegate but it differs greatly according to the level of willingness to delegate. If this is low, i.e. their autonomy preference is high,
customers will act on their own responsibility to the greatest extent
possible. However, there are certain prerequisites for this. Consumers
must know their own needs and be able gather adequate information,
and the purchasing process must be comprehensible. Consumers with
a low autonomy preference want someone to stand by them and at
least coach them during the decision-making process, or someone to
whom they can delegate the decision completely. And there are other
factors that make consumers vulnerable: they have to be able to choose
their own adviser, the adviser must have adequate interpersonal skills
and the adviser must be trained in insurance products. The perceived
control of customers also has an effect on how they react in the event
of an insurance claim. If customers do not feel they are capable of
controlling the situation, they are also more vulnerable when it comes
to an insurance claim.
4.5 How do consumers perceive the relationship with their
insurance provider?
–– The customer adviser has a difficult job. Nonetheless, 61% of consumers
surveyed said that they sought advice, which implies that they are satisfied.
–– 14% of consumers have a general disdain for customer advisers either
because they do not trust them or they find contact with them unpleasant.
–– By quality advice, consumers mean advice tailored to their needs and the
particularities of their situation. Only in this way can information deficits be
compensated for, and complexity and perceived risk be reduced.
The relationship between the
consumer and both the customer adviser and the insurance
provider defines the customer’s
vulnerability and need for
protection.
The customer adviser occupies a special position in the insurance market, which is illustrated in figure 18. Customer advisers are consulted by
consumers particularly in decision-making situations but also over the
course of the relationship when, for instance, the risk situation of the
consumer changes. They can perform various functions for consumers.
They reduce the effort that goes into gathering information, help customers understand their risk situation, reduce complexity, create trust
and are often simply someone to talk to. In the best case, the support
the risk management and the decision-making process of consumers
and in doing so become their agents. Tied insurance agents are also
committed to the goals of the insurance provider, however. Depending
on the strategy, they are looking for higher sales volume, higher return,
and greater customer loyalty or mutual value-creating relationships,
although these goals are not mutually exclusive. This strategy is part
76
of the performance objectives of customer advisers and customarily
defines their wages. The situation is similar for independent brokers.
Here, too, the customer adviser is directed by the objectives of insurance companies by means of contractual provisions, with the difference
that the broker has more flexibility to act. Customer advisers are thus
positioned between the expectations of two parties in the insurance
market and, in the end, they also pursue their own interests of course.
Fig. 18: The position of customer advisers between expectations and objectives
(source: proprietary figure)
Insurance
company
Objectives /
contractual
provisions
Consumer /
customer
Expectation to act in
the interest of the customer
Customer adviser
(insurance
agent/broker)
The relationship between the consumer and the customer adviser as
well as that between the consumer and the insurance provider are crucial for determining the vulnerability of the consumer in the insurance
market. Therefore the following must be discussed: the extent to which
advice influences the insurance decision; the extent to which there is
a relationship of dependency between the customer adviser and the
consumer; and the extent to which the insurance provider treats its
customers fairly and is accommodating in particular situations.
In order to judge the potential influence of the customer adviser, we
first need to determine how often professional consultation takes place.
The survey shows that 61% of respondents will seek advice from a
professional at least once in the next five years. The values do not differ
much according to gender, age or educational status. There are regional
particularities, however. Ticino has a quota of 78%, while the other
regions all have about the same quota. 39% of those surveyed do not
want to seek advice in the next five years. There are various reasons for
this. Figure 19 shows that the main reason is that the respondents prefer to gather information themselves, either because they do not trust
professional advice or they do not want to spend the time getting it.
61% of consumers will seek
advice in the next five years. The
reason for not seeking advice is
primarily a preference for gathering information independently.
Fig. 19: Reasons for not seeking advice, % of those surveyed, n=399
16%
I do not have confidence in advisers.
23%
21%
I find the contact with an adviser unpleasant.
14%
56%
I prefer doing my own research.
I don’t have any time for a consultation.
I have not found an appropriate adviser up to now.
The potential influence of the
customer adviser is high. Independent brokers take on about
a quarter of tall consultations.
In order to understand whether there are differences between insurance
products in this context, we have taken a closer look at those surveyed
who are going to seek advice in the next five years, i.e. those who are
generally not disinclined to seeking advice. Assuming that the risk
situation and the corresponding insurance coverage is to be reviewed
professionally at least once every five years, at least those who have
taken out such insurance products would have had to indicate that they
would be seeking advice in the next five years. If this is not the case, it
can be assumed that the tie between the consumer and the customer
adviser is comparatively weak. The results, illustrated in figure 20,
show a high percentage of consultation. The results vary from product
to product, however. While 81% of those with motor vehicle insurance plan to seek advice in the next 5 years, for supplementary health
insurance the number is only 67%. It can thus be assumed that the tie
between consumer and consultant is closer for non-life insurance (with
the exception of legal expenses insurance) than it is for life insurance
or supplementary health insurance. Brokers provide between 22% and
29% of customer consultations, while tied insurance agents provide
71% to 78%. The percentage of independent brokers is relatively low
compared to Germany, for example.
Fig. 20: Advice by product, % of those surveyed, n=628
... of whom
I have the
product
will be seeking
advice in the next
five years
(n=628 oder 61%)
Motor-vehicle insurance
Household contents insurance
Liability insurance
Life insurance
Supplementary health insurance
Legal expenses insurance
78
81%
87%
93%
43%
77%
58%
... of whom
I seek advice
81%
80%
75%
71%
67%
66%
... of whom
insurance
agents
... ow whom
brokers
78%
78%
77%
71%
75%
74%
22%
22%
23%
29%
25%
26%
Consultation serves various functions for the consumer, as shown in figure 21. The most important function is providing information (68%).
Consumers would like to compare the results of their own research
with those of an expert. This alleviates any concerns about consumer
protection as the decision-making process is based on several sources
of information. 61% of those surveyed take advantage of the offer of
consultation as they are confident they will get an optimum offer from
the adviser. Their primary aim in doing so is to reduce complexity.
The consultation performs
various functions, primarily that
of providing information, and reducing complexity and cognitive
effort (easing the burden).
Fig. 21: Function of consultation, % of those surveyed, n=628
fairly low
Information gathering
4
4
5
18
fairly low
Reducing complexity
3 3
4 4
26
8
10
24
25
8
14
22
20
neutral
10
13
15
fairly high
18
16
neutral
14
16
fairly high
24
fairly low
Delegation
22
neutral
9
17
fairly high
25
fairly low
Personal relationship
25
neutral
fairly low
Convenience
fairly high
neutral
27
15
fairly high
18
7
7
58% of those surveyed want a straightforward and quick decision-making process. They place a lot of value on saving time and effort. 49%
seek advice out of habit. They have had good experience with it and
rely on a longer-term relationship with their adviser. 32% of consumers
feel out of their depth and want to delegate the issue to an adviser.
From a consumer protection perspective, alarm bells start ringing
when it comes to these consumers as they are very much at the mercy
of the adviser.
In addition, the data collected indicate which factors are important to
consumers when seeking advice. Consumers consider factual knowledge a basic requirement. An overwhelming majority of 86% see the
know-how and expertise of the adviser as a mark of quality. Customers
demand of the adviser extensive background knowledge about relevant
insurance issues and do not only want to be informed in detail about
the products of a single insurance provider but also want additional
information on alternatives and any drawbacks. However, it is hardly
any less important to consumers for advisers to address consumer’s
personal needs and offer them tailored solutions. In the interviews
Customers expect their advisers
to respond to their personal
needs and to tailor their advice
to the individual. This is also
where there is the biggest gap
between customer expectations
and effective advice.
it became clear that a lot of customers complain about the adviser
focussing on sales and about their individual interests and needs often
receiving inadequate consideration in the consultation process. Figure
22 summarises the results.
Fig. 22: Quality of consultation, % of those surveyed, n=628
neutral
Sound factual knowledge 11 3
10
fairly high
14
29
43
neutral
Personal needs 112
11
fairly high
18
29
38
neutral
Tailored solutions 11 3
10
fairly high
18
32
neutral
Authenticity 11 4
13
fairly low
4 4
8
35
fairly high
17
30
neutral
20
34
fairly high
21
24
18
The behaviour of insurance companies when interacting with consumers does not have a direct impact on consumer’s vulnerability but the
fairness of the consumer- insurer relationship is crucial for assessing
whether the market should be more strictly regulated.
Distinction between
distributive, interactive
and procedural fairness
Here fairness is to be understood as an expression of individually perceived justice and is therefore of a subjective nature. For the purpose
of this study, a distinction will be made in the following between distributive, interactive and procedural fairness. While distributive fairness
refers to the service that an insured person receives from an insurance
provider, procedural fairness refers to the preceding burden-sharing
procedure. Interactive fairness, on the other hand, does not refer to
material services as such, but rather to the form of personal interaction.
If customers perceive their treatment as unfair, this will lead to the role
of the insurance provider taking on a negative association and, in the
end, to consumers having an increased perceived need for protection.
An evaluation of the data collected allows extensive inferences to be
made about the consumer-insurer relationship from the perspective
of the customer. This evaluation is depicted in figure 23. There is a
similar picture of perceived fairness across the various insurance lines
(motor vehicle, life, etc.). 50% of respondents assess the relationship
as relatively fair, 31% are indifferent and 19% are inclined to classify
80
the relationship as unfair. A comparison of insurance categories shows
that motor vehicle and household contents insurance rate slightly worse
in the perception of customers than legal expenses and supplementary
health insurance, while liability and life insurance are in the middle.
There are also differences in perceived fairness among the aforementioned categories (distributive, interactive and procedural). Interactive
fairness in particular is perceived as worse by those surveyed. 25% of
respondents term the personal interaction with their insurance provider
as relatively unfair.
Fig. 23: Fairness, % of those surveyed, n=836
fairly low
Overall fairness
4
5
neutral
10
31
fairly low
Distributive fairness
3 3
Interactive fairness
5
fairly low
3 4
9
25
neutral
12
9
19
9
fairly high
30
19
neutral
30
18
fairly high
32
fairly low
Procedural fairness
23
neutral
8
8
fairly high
15
10
fairly high
25
The comments show that about half of consumers tend to judge perceived fairness as high. Nonetheless there is a large proportion who are
more neutral as regards the relationship or who have tended to have
negative experiences with insurance providers. The role of the insurance
provider as regards the perceived need for protection of the consumer
is by all means to be questioned critically. Information flow tailored to
the needs of the consumer and high transparency towards the consumer
are possible starting points for enhancing perceived fairness. The consultation services of the insurance provider are also to be questioned
critically. This not only has a great impact on perceived fairness as such
but to a substantial degree also determines the role and the conduct
of the insurance provider in the customer relationship in general. The
evaluation of the data collected supplies important starting points in
this respect as most of the consumers surveyed have a fairly clear idea
of what constitutes good consulting.
20
9
Typology
5
of the
insurance customer
5
5 Typology of the insurance customer
–– This study contains the first ever consumer typology based on empirical
data for the area of insurance that is specifically geared to the vulnerability
of consumers as a central feature.
–– The typology described below makes it possible to identify and characterise general behavioural trends,
–– and is based on personal factors that may contribute to the vulnerability
of consumers.
A fundamental understanding of consumers is the basis for anchoring
consumer protection in law. Consistent with findings from information
science, information is a resource that takes effort for consumers to
obtain and transform into knowledge. Consumers have to think hard
about how to employ their scarce time and financial resources in order
to afford the products and services they want. This model of “reasonable
behaviour” forms the basis of much consumer protection legislation
(Pappalardo, 2012).
Consumers must perform a
balancing act between limited
resources and the products and
services they want.
Official strategies for consumer protection can be mapped along a
continuum, from weakly to highly prescriptive or over-regulated (Pappalardo 1997a, 1997b). Examples of strategies along the continuum
are: (1) informing consumers (weakly prescriptive), (2) educating
consumers (raising financial literacy), (3) regulating product features
(highly prescriptive). Which strategy is efficient and effective depends
to a great extent on the underlying image of the consumer.
Different consumer protection
strategies are based on different
conceptions of how consumers
act and make decisions.
One of the main objectives of this study is to develop a detailed image
of the consumer. To best meet this goal, we have developed a typology
of Swiss insurance consumers with reference to their vulnerability in
various situations. In this context, vulnerability, as introduced in Chapter 4, is characterised by the risk of harm that consumers are exposed to
as a result of personal or market-related factors (Cartwright, 2014). The
market-related factors deriving from the state and insurance providers
have been explained in Chapters 2 and 4. The typology specified here
considers solely the personal factors that may contribute to consumer
vulnerability.
The objective of this study is to
determine how Swiss consumers
act and make decisions.
To date, no one has developed a typology of insurance consumers and
their vulnerability risk based on empirical data. But such a typology is
the indispensable basis for understanding how consumers make insurance decisions. Up to now, typologies of insurance customers have been
of a general nature, such as customer profiles based on psychographic
characteristics (Bieck, Bodderas, Maas & Schlager, 2010). These, however, do not focus on aspects that are relevant for consumer protection.
Behavioural tendencies vary among consumers according to which
personal preferences take priority when making decisions. Although
typologies do not give any direct insight into how individuals will
A typology of Swiss insurance
consumers can provide insights
into possible protection
strategies.
behave in a particular situation, they do make it possible to identify
and characterise general tendencies (Keegan, 2009).
This chapter contains a description of the methodology used for developing the typology and explains which information and dimensions
were used as a basis for defining types (section 5.1). Chapters 5.2 to 5.5
build on this and provide an overview and a detailed characterisation
of the three consumer groups identified.
5.1 Development methodology
–– The development of the typology took place in three consecutive steps: (1)
focus groups, (2) interviews and an (3) online survey.
–– The dimensions personal responsibility, interest, information behaviour and
knowledge form the basis of the typology.
–– Several analysis procedures guarantee the validity of the typology developed.
Four main dimensions for the
typology emerge from the two
qualitative phases (focus groups
and interviews).
The typology of insurance consumers in this study was developed in
three consecutive phases and was conducted on the basis of the individual types of those surveyed with regard to four main dimensions. First
a range of various attitudes to consumer protection in the insurance
industry was compiled using the seven focus groups. The second phase
focused on individual and detailed additional information. The result of
these two steps is a definition of the dimensions central to the typology.
This will be explored in more detail in the following.
The dimension of personal
responsibility denotes the ability
to evaluate decisions and their
consequences.
The dimension personal responsibility (autonomy) deals with the
ability of consumers to evaluate a decision and its consequences. The
dimension refers to the purchasing decision itself and the associated
process as well as to the later stages of the customer journey, such as
behaviour when making an insurance claim. In this context, the questions for determining the degree of personal responsibility take their
cue from the Autonomy Preference Index (Ende et al, 1989).
Values of the dimension range from a comprehensive degree of delegation
to controlled delegation and on to a high degree of personal responsibility:
–Comprehensive delegation describes the behavioural pattern of
consumers who completely turn over the decision about taking out
insurance and the associated responsibility to third parties judged
more competent.
– Controlled delegation involves situations of intense consultation by
third parties in which, however, consumers consciously make the
decision for or against an insurance product themselves.
84
–A high degree of personal responsibility/autonomy characterises
consumers who make their decisions themselves and who are also
prepared to bear the resulting consequences.
The second dimension refers to consumer’s interest in insurance topics.
This dimension is principally about the extent to which consumers
recognise insurance topics as useful and relevant for themselves such
that they attempt to assess and understand them. Personal interest in
the sense of a preference for the topic is not taken into account. The
qualitative data can be used to distinguish three types of interest: when
there is existing interest in insurance topics, consumers will make a
reasonable effort to look into them. In contrast, consumers with only
little interest will attend to insurance topics only in individual cases,
while consumers who display rejection will actively oppose spending
time on insurance topics. In order to reflect these types also in the
quantitative survey, an empirical set of questions based on Chandrasekaran (2004) was used.
The dimension of interest is
decisive for the way in which
consumers approach insurance
issues.
The dimension of information behaviour attempts to determine how
consumers gain access to and gather information. A difference is made
between active and passive information gathering. In active information
gathering, information is either obtained entirely autonomously from
various sources or there is active information gathering through third
parties. The passive form of information gathering is characterised by
little use of different sources and the frequent gathering of information
through third parties without actively requesting it. An example of this
is seeking advice from an adviser when taking out insurance without
critically checking or supplementing the information received from
that person. Information behaviour across various sources was measured using the scientific scale developed by Mishra and Kumar (2012).
Consumers apply passive and
active information-gathering
strategies.
The final main dimension for the typology was consumer’s (basic)
knowledge of financial and insurance matters (i.e. their financial
literacy). Financially illiterate consumers cannot answer elementary
questions with regard to basic constituents of the financial market
(e.g. inflation, time value of money, interest rates). If consumers are
able to answer at least half of the elementary questions correctly, their
financial literacy is based on experience, however, they cannot always
apply their knowledge to other contexts and situations. On the other
hand, consumers who are able to answer at least 75% of the questions
correctly are financially literate and exhibit sound factual knowledge.
All questions for evaluating basic financial knowledge are based on the
scientific scale for measuring basic financial literacy developed by Rooji,
Lusardi and Alessie (2011).
Basic financial literacy represents
the final dimension of the
typology.
The validity of the typology is
ensured by an online survey
throughout Switzerland and
several analysis techniques.
The final type definition was developed on the basis of the survey
data of 1,027 consumers in Switzerland who make, or help to make,
decisions about insurance questions. Several cluster analysis procedures were carried out when assigning consumers to the respective
types in order to ensure the validity of the results. Cluster analysis is
a classification procedure aimed at identifying homogeneous clusters
among a heterogeneous set of objects. Individual respondent types
were examined for individual dimensions and other characteristics by
means of discrimination analysis. Based on the findings, it was possible
to analyse and describe the three consumer types in detail. The three
types are each characterised by strong similarities of respondents when
it comes to the values of the individual dimensions. The procedure
selected makes it possible to form homogeneous consumer groups
from an originally heterogeneous set of respondents and, in doing so,
create specific starting points for the definition of protection measures
geared to their needs.
5.2 One consumer – three faces?
–– Delegators, pragmatists and autonomous decision-makers are the labels
applying to basic behavioural tendencies in the Swiss population.
–– The degree of delegation and basic financial literacy are the features that
exhibit the strongest differentiation.
The interviews conducted provided indications of different consumer
types. The outcome of the online survey served to reduce these types
to three, with the values of the dimensions set out above being used as
the basis for differentiation. Delegators, pragmatists and autonomous
decision-makers mirror the basic behavioural tendencies and attitudes
of the Swiss population.
Figure 25 summarises the major points of the typology developed, and
provides insight into how the types differ from each other and what
they have in common. Furthermore, in addition to the general dimension values, we examine the sociodemographic data and assess consumer vulnerability when purchasing insurance and/or lodging claims.
Inadequate financial literacy
coupled with a high degree of
delegation for 23% of respondents is a clear indication that
action is required.
The degree of delegation and the basic financial literacy of the respondents are strong differentiators. When delegating, the perception of personal responsibility predominates in insurance decisions. Nonetheless,
it is striking that almost a quarter of those surveyed (the delegators)
exercise controlled to comprehensive delegation. This is a matter of
concern as the group of delegators is also the one that exhibits a significant lack of basic financial literacy. As mentioned above in the methodological description in Chapter 5.1, the scale applied covers only
86
the amount of fundamental knowledge and does not go into detail. As
already discussed in Chapter 4.2, financial literacy exerts an influence
on the decision-making process in the area of finance and insurance
that is not to be underestimated (van Rooji, Lusardi & Alessie, 2011)
and that may lead to wrong decisions which may be difficult to undo.
The information behaviour dimension is most highly developed for the
group of delegators. They are the ones who collect information most
actively and consult a lot of different sources for their research. The
aim of delegators’ active behaviour is to find a trustworthy person who
can give them good advice and take care of their insurance matters.
Pragmatists, in contrast, are very passive and seek information only
when they deem it absolutely necessary. The group of autonomous
decision-makers also behaves somewhat passively. Autonomous decision-makers consult various sources of information but do not take
full advantage of them.
Delegators are the most active
seekers of information on
insurance, followed by autonomous decision-makers and
pragmatists.
There is an interesting tendency that can be observed with increasing
age. The proportion of those over 45 increases somewhat as soon as
you move from the delegators to the autonomous decision-makers.
The average age also increases in the groups. This is no clear evidence,
however, that behavioural patterns associated with the three types
necessarily evolve from delegator to autonomous decision-maker with
age. But it is an indication that knowledge is gained later in life and
that little use is made of the great learning potential of younger years.
There is a slight tendency to
more knowledge and more
autonomy among older people.
Besides age, an increase in educational level from delegator to autonomous decision-maker can also be observed. While 3% of delegators do
not have any degree and only 18% have a university or other post-secondary degree, all autonomous decision-makers have finished school
and vocational training, 27% of the autonomous decision-makers
have a university or other post-secondary education. This tendency
is not surprising as a higher level of knowledge is generally associated
with a higher level of education. While the gender distribution among
delegators is fairly even (55% men and 45% women), men and women
among pragmatists and autonomous decision-makers are inversely
related. 60% of pragmatist behavioural traits are correlated to women,
while for autonomous decision-makers it is 42%.
The amount of knowledge also
tends to increase with the level
of education.
The regional and linguistic distribution of the three groups follows the
expected pattern. German-speaking Switzerland makes up the largest
portion of the groups, followed by the French- and Italian-speaking regions. However, if you examine the distribution closely and compare it
with the reference values for the language named as the main language
by the Swiss Federal Statistical Office (FSO, 2015), it turns out that
the German-speaking regions are overrepresented among pragmatists
and autonomous decision-makers. Figure 24 shows the comparison
Just under half of delegators
are to be found in the Frenchand Italian-speaking regions of
Switzerland.
between the typology distribution and the associated reference values.
It is striking that a greater portion of the group of delegators is to be
found in French- and Italian-speaking Switzerland than the reference
values would suggest.
Fig. 24: Comparison of typology distribution with FSO reference values
76%
72%
53%
GE reference value
FR reference value
IT reference value
29%
21%
18%
17%
8%
Delegators
7%
Pragmatists
German
French
Autonomous decision-makers
Italian
To sum up, in figure 25 there is a brief assessment of vulnerability for
each of the three types. The assessment is based primarily on the four
dimensions of personal responsibility, knowledge, information behaviour and interest. The group of delegators exhibits elevated vulnerability
risk compared to the other two. This is due primarily to their lack of
knowledge of finance and insurance issues and their low feeling of personal responsibility. Pragmatists bear moderate vulnerability risk – they
are conspicuously passive in their information behaviour, not only in
comparison to the other two groups. Overall, they rely on fewer sources
of information and do not always use these particularly intensively.
Because of their somewhat higher level of knowledge, they are only
at a moderate level of vulnerability. Autonomous decision-makers are
characterised by their financial literacy and their pronounced feeling
of personal responsibility, but they nevertheless act rather passively
when it comes to gathering information about insurance issues. There
is vulnerability risk for this group as well, if somewhat lower than for
the other two.
The following chapters, 5.3 to 5.5, give a detailed description of the delegator, pragmatist and autonomous decision-maker groups. Particular
attention is devoted to risks in their handling of insurance topics and
in their relationship to advisers, and we present ways of minimising
these risks.
88
Fig. 25: Comparison of the three consumer types, n=1,027
Delegators
“It’s basically an apprenticemaster relationship.”
23%
Pragmatists
“Insurance? Just file it
away somewhere.”
41%
“Because I know exactly what
I want and what I can do.”
36%
Age
average 47
average 44
8%
16% 14%
30%
16%
23%
24%
21%
46 – 55
7%
20%
25%
19%
56 – 65
average 50
31%
36 – 45
26 – 35
23%
23%
aged 25
and younger
Gender
55%
45%
40%
60%
42%
58%
Education and training
2%
3%0%
18%
20%
19%
60%
53%
17%
61%
University (of Applied Sciences and Arts)
27%
20%
Higher vocational training
Up to upper secondary level
None
Average monthly income
Fr. 6092
Fr. 5819
Fr. 6100
Region
GE
FR
IT
53%
29%
18%
76%
16%
8%
72%
21%
Personal responsibility
Basic financial literacy
Information behaviour
Interest in insurance matters
Vulnerability assessment
Illiteracy and heavy
reliance on advice
Striking passivity and
average knowledge
Passivity and advice
from others
7%
5.3 Delegators
–– Delegators are characterised by their perception of consultation as an
opportunity to avoid autonomous decisions.
–– Delegation behaviour tends to be more typical of younger and low-income
segments of the population.
–– The vulnerability risk of this group is rather high due to their high reliance on
advisers.
An interviewee described the relationship to his adviser as “...basically
an apprentice-master relationship”. That is also the defining characteristic
of delegators. In contrast to the other types, delegators see consultation
as an opportunity to avoid autonomous decisions. In over 60% of cases,
delegators discuss decisions with their adviser irrespective of whether
it is about a new policy, adjustments of coverage or the termination of
existing policies.
This type is characterised by
the delegation of insurance
decisions, primarily to insurance
agents.
Fig. 26: Sociodemographic description of delegators,
Gender
Region
55%
Age
20
average 44
16% 14%
19%
30%
21%
aged 56–65
aged 46–55
aged 36–45
aged 26–35
aged 25 and
younger
Education
3%
15
9
45%
6
11
20
18
Employment
Income
49%
7%
18%
60%
19%
22%
8%
Sciences and Arts)
No qualifications
14%
6%
ed
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ini
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tim yee
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p
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tra
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r lo
l lo
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a
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e
I
P p
F p
lfEm
Se
Em
35%
36%
No
ne
22%
no response
The sociodemographic characteristics of delegators are summarised
in figure 26. In comparison to the other two groups age and income
distribution particularly stand out. It becomes clear that delegators tend
90
to comprise the younger portion of the population (46% are 35 years
of age or younger). Moreover, more than a third of delegators have
a below-average income, and only 7% have above-average monthly
financial resources at their disposal. On the one hand, the latter can
be attributed to their comparatively low age, on the other, delegators,
in fact, appear to comprise a majority of people with below-average
income irrespective of age.
With this type, the degree of delegation can be classified as partly
controlled and partly comprehensive. Depending on the context and
situation, delegators use their advisers as a reliable means of obtaining
information or delegate their decision-making authority almost blindly
to them in cases that they judge to be either non-critical or overly complex. In general, consumers who behave as delegators are only interested
to a certain extent in insurance topics and feel out of their depth with
legal contract language. As one interviewee put it, he just does not like
reading contracts. Just fewer than 70% state that they want to seek professional advice about insurance in the next five years. Insurance agents
are the primary professional partners for all insurance lines. Brokers,
on the other hand, are consulted by between only 19% (motor-vehicle
insurance) and 24% (life insurance), depending on the insurance line.
Advisers are seen as reliable
sources of information or decision-makers.
“Because for me it is not worth the time and effort to pick it up again
myself and to read through all the terms and restrictions again and try to
understand them.”
Just fewer than 70% state that they want to seek professional advice
about insurance in the next five years. Insurance agents are the primary
professional partners for all insurance lines. Brokers, on the other hand,
are consulted by between only 19% (motor-vehicle insurance) and 24%
(life insurance), depending on the insurance line.
Delegators set great store by the evaluation and selection of their adviser
due to the great amount of confidence they place in them. This choice
may involve delegators actively putting a lot of effort into research. A
personable and competent attitude is essential. An especially relevant
criterion for delegators is for advisers to ascertain their insurance requirements. In their eyes an informative talk beforehand is indispensable for tailoring solutions to their personal situation. They characterise
the role of the adviser as follows:
“… that the adviser actively works to get an overview of my situation and
takes the trouble to ask me about my needs. Ask questions first and then
start talking about offers. And then he should put himself in my shoes and
provide a few alternatives.”
The choice of the right adviser
is crucial.
80% of delegators cannot be
called financially literate
Another reason for delegating decisions is the attitude of delegators towards insurance companies. These are perceived as a necessary evil and
a burden. Two-thirds feel at least somewhat out of their depth when
it comes to insurance topics. This finding is consistent with their level
of financial literacy. Acquiring knowledge in the area of insurance is
not an important issue for delegators – after all, the topic is often very
complex and without any obvious added value. At 80%, the group of
delegators has the greatest proportion of financially illiterate people.
Some of them are aware of this themselves:
“I have no idea what I’m doing […]. and have to rely on obtaining information from sources that are somehow reliable and competent.”
Fair and secure – that is the way
delegators judge the insurance
relationship.
Accordingly, their approach to concluding insurance contracts is
sometimes very quick and pragmatic. Delegators usually accept offers
from advisers no questions asked. It took one interviewee only a few
days to conclude a life insurance contract. The reason he gave for the
speed of his decision was “that’s not my main job”. Other reasons for
such behaviour could be the insurance relationship, which is perceived
to be generally fair, and the feeling of security provided by consumer
protection measures.
It is not always clear to delegators which offers they can get
from which adviser.
60% of all delegators state that they would like to know their insurance
agent’s commission, while broker compensation interests only 45%.
Just under half of delegators, however, are not prepared to pay broker
fees. In response to the question as to which of the two tends to act
free of self-interest, 42% say the insurance agent, 32% the broker and
the remaining 26% do not see any difference. These findings give a
clear indication that delegators are not always aware that the offer
presented to them might be influenced by the adviser’s own interests.
As one delegator put it, he took out his motor-vehicle insurance from
a “broker from Allianz”.
How vulnerable are delegators?
Delegators’ decisions are only as
good as the recommendations
of their adviser.
While delegators are quite active in their information behaviour and attach a lot of value to finding a person they can trust, who then becomes
their main source of information, they nevertheless have to rely on the
quality and reliability of the information they receive when making a
purchasing decision. The decisions of delegators are only as good as the
reliability of their advisers’ recommendations. If the adviser does not
take sufficient time to examine the needs of delegators in their current
personal circumstances, the risk of buying/selling the wrong insurance
products is quite high.
92
The vulnerability of delegators derives from their heavy reliance on
advisers. High vulnerability risk exists both for purchasing decisions
and for claims. For the latter, advisers are also the first people delegators
turn to. A lot of delegators rely on a loyal relationship to their adviser
and, accordingly, on possible negotiations regarding claims payments.
Nonetheless, many also unquestioningly accept a simple explanation
of why, for example, an insurance claim was denied.
The vulnerability of delegators
derives from their heavy reliance
on advisers.
Delegators do not make their decisions alone as they hardly have the
knowledge to approach insurance issues with competence. The adviser
represents one way of gaining access to this group and reducing their
risk somewhat. As the group’s main contact, the adviser can use appropriately prepared materials to gradually expand the knowledge of
delegators and sensitise them to the fact that they bear the responsibility
for their decisions.
Advisers are the key to delegators.
Three questions for delegators
Did you find the information you needed for the decision for an insurance product?
Delegator: “No, that’s why I took on an expert. No, I really find it a jungle. If you don’t deal with it on a daily basis, it’s
difficult. Because every type of insurance is different and that really makes it difficult at times to draw comparisons.
Things are never in the same way. There’s always something else being sold. You need an enormous amount of time
and patience until you get everything together and can compare and break it down to the essentials.”
Do you have a person of trust who you can turn to about insurance matters?
Delegator: “Yes, a broker, and otherwise I am afraid of all brokers. But not of him, he knew everything that I couldn’t
know. He just said, let’s have a look – this was not about insurance for me but for the theatre – we’ll have a look at
everything. Liability insurance for the theatre, open-air performances and for the audience. International transport
insurance, what’s the set-up, it’s not all that simple. And he found solutions for me that saved me about three to four
thousand francs a year in the end. And because of that, I’ve called him up now and again, and now he’s found car
insurance for me, the cheapest, but where I’m well covered nevertheless. I was lucky to have a person who did that for
me. If you had to do it yourself, it’s like playing the lottery.”
Insurance usually means documentation and contracts. To what degree do you try to come to grips with
that?
Delegator: “To be completely honest, hardly at all. I mean, we sit there and talk about insurance and he [the adviser]
tells me what it’s more or less about. Maybe also about customer protection and the like. Honestly, though, I never
read through everything, just sign the paperwork at the end.”
5.4 Pragmatists
–– Pragmatists assume responsibility for their decisions even if they are made
quickly and without a lot of detailed information.
–– At 41% of all those surveyed, this group is the largest of all three.
–– The high vulnerability risk of pragmatists is principally the result of their
passive attitude and poorly informed decisions.
“In general, I think that we in Switzerland have almost too much insurance, that we are almost over-insured and insurance is also something where
I take a look, but it is not something that, how shall I say, I put lot of time
and energy into, that I would really go into in any great depth.”
Pragmatists act on their own
responsibility and make their
own insurance decisions.
Pragmatists do not spend a lot of time on insurance matters. They
do not understand a lot about such matters and are not at all interested in them. What is striking is that pragmatists nonetheless make
insurance decisions without outside help and generally also assume
responsibility for their decisions. Just fewer than 60% report that they
make their decisions themselves, while about 30% also consult their
adviser before deciding on a new policy, or changing or terminating
insurance policies.
Three-fifths of pragmatists are female, 40% are average earners and
42% live in western Switzerland or in the Bern region. Figure 27
provides a sociodemographic description of the group of pragmatists.
A conspicuous regional difference to delegators can be observed in
Ticino. Whereas 18% of delegators are to be found in Ticino, the
corresponding figure for pragmatists is only 8%. Overall, the portion
of women and middle-aged and elderly people is somewhat higher
than for delegators.
94
Fig. 27: Sociodemographic description of pragmatists,
Gender
Region
40%
Age
22
average 47
8%
20%
25%
23%
24%
aged 56–65
aged 46–55
aged 36–45
aged 26–35
aged 25 and
younger
Education
2%
17
13
60%
8
12
20
8
Employment
Income
49%
20%
61%
17%
10%
21%
19%
8%
Sciences and Arts)
No qualifications
3%
ed
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tim yee
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a
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F p
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Se
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40%
29%
No
ne
40% of pragmatists do not know their rights as policyholders. In addition, almost 40% feel out of their depth when dealing with insurance
matters. That also explains their fairly passive information behaviour
compared with delegators and autonomous decision-makers. Pragmatists avail themselves of only a few sources of information and use
only a few of these intensively. Websites of insurance companies and
independent comparison services are sometimes a relevant source, but
pragmatists most of all prefer talking face-to-face with others. Compared with other sources, they very often seek contact to third parties
to obtain information. They most actively consult insurance agents and
brokers, followed by friends and family. One pragmatist described the
preference for personal contact as follows:
“I’m more someone who, I like discussing things with someone and not
sitting alone at the computer and not having any other information… for
the most part you don’t get it [online], well, you get information but not in
depth, if you want that, you have to ask elsewhere.”
21%
no response
The feeling of being out of their
depth when it comes to insurance topics partly explains the
passive information behaviour of
pragmatists.
Experience and an average level
of knowledge often serve as
heuristics in insurance decisions.
Although pragmatists are no experts in finance and insurance matters,
they have acquired some knowledge and are at an average level of
financial literacy.. They are capable of answering more than half of the
elementary financial literacy questions correctly. Their knowledge is
based in part on their own experience and in part on what they have
learnt talking to other people. On the basis of this experience, pragmatists make up their minds very quickly as to whether they want to invest
time in insurance matters. They use their knowledge and experience as
decision aids, so-called heuristics, to arrive at a solution quickly. 57%
are of the opinion that taking out insurance does not take an excessive
amount of time:
“Car insurance is a relatively ’minor thing’. A telephone call is sufficient
for taking that out.”
Slight feeling of insecurity
despite consumer protection
measures.
On the whole, pragmatists do not feel particularly secure with the
present level of consumer protection in Switzerland. A little more than
a third (35%) even say they feel insecure and only 12% opted for the
two highest security levels. Opposing this feeling of insecurity is, for
one, a rather optimistic perception of risk in the relationship to their
insurance provider and, for another, fair treatment in the event of a
claim, which pragmatists rely on.
Pragmatists do not consider
information about consulting
commissions relevant.
In contrast to delegators and autonomous decision-makers, a somewhat
lower proportion of pragmatists, 55%, say that they will be seeking
professional advice in the next five years. No clear picture emerges
regarding the extent to which pragmatists consider insurance agent
commissions to be relevant information. 43% do not want to know the
commission, while 38% would. In the case of brokers, it is also only a
small proportion of respondents that would like to know the commission (31%), while 47% are not interested. With regard to the issue of
independent advice, 33% say that insurance agents generally are less
motivated by self-interest than brokers. For brokers, it is only 28% and
a total of 40% of those surveyed see no difference. Even if there are in
some cases considerable differences in individual answers compared to
delegators, no one prevailing view with regard to the independence of
advice clearly emerges among pragmatists either.
How vulnerable are pragmatists?
A lot of weak points lie at the
root of the vulnerability of
pragmatists.
Many factors have an impact on the vulnerability of pragmatists, both
for the purchasing decision and when disputes arise. Their being out
of their depth with insurance issues, their passivity about gathering
information and their average level of financial literacy are just some
of the potential weak points of pragmatists. Even if they are ready to
admit personal responsibility when it comes to disputes, they often
tend to just accept a situation as it is, especially when demanding their
96
rights involves a lot of effort in relation to quite a small amount of
compensation.
Pragmatists are not people particularly interested in the fine details. A
structured and readily comprehensible overview of the most important
information relevant for them helps them make informed decisions.
The complexity of gathering information as well as the subject matter
itself forces them to limit the information they need to a minimum so
as not to spend too much time on insurance. As a result, there’s the risk
of them relying too heavily on heuristics or on the recommendations
of others. In general, pragmatists, like delegators, exhibit enhanced
vulnerability potential that can be reduced through brief, structured
information overviews and comparisons of the most important facts.
Reliance on heuristics and on
the recommendations of third
parties harbours great risk.
Three questions for pragmatists
How do you find information on certain questions that you have about insurance?
Pragmatist: “I definitely ask my family and friends. What I don’t do is research things myself because you just end up
going around in circles. I prefer to go to a consultant and say, ”explain that to me“, because if I start surfing the internet
I see things that I don’t want to find.”
How did you find your insurance provider in the first place?
Pragmatist: “I asked around where people were insured. You have to announce it. And they basically gave me a report
of the experience they had had, I’ve been with this one for such-and-such a time and they’re okay for me. I then
requested an offer from the same insurance provider and it suited me. Here, too, as little effort as possible but well
packaged.”
How much detail do you go into when dealing with insurance policies and documentation?
Pragmatist: “Hardly any, minimalist approach. It all goes so quickly. I sign the document and don’t ask myself any more
whether it was right or wrong.”
5.5 Autonomous decision-makers
–– A pronounced degree of personal responsibility characterises autonomous
decision-makers.
–– There are an above-average number of autonomous decision-makers in
the north-western region and in Zurich. In general, they have a higher level
of education and higher income than delegators and pragmatists.
–– Compared with delegators and pragmatists, autonomous decision-makers
are the least susceptible to making wrong decisions.
Autonomous decision-makers are characterised by a pronounced degree
of personal responsibility. Insurance customers in this category make
decisions themselves and consciously bear the consequences of their
own actions, also when making a claim. They rely greatly on themselves
knowing what insurance requirements they have. They are aware that,
while they can obtain information from a third party, the final decision lies with them. This highly pronounced feeling of responsibility is
supported by a very high level of knowledge compared with the other
“You have to know what you
need and what you don’t need.
Personal responsibility is very
important.” – Autonomous
decision-maker
two types. More than half (56%) answered three or all four financial
literacy questions correctly.
Fig. 28: Sociodemographic description of autonomous decision-makers,
Gender
Region
58%
Age
average 50
7%
31%
16%
23%
23%
17
aged 56–65
aged 46–55
aged 36–45
aged 26–35
aged 25 and
younger
Education
0%
22
17
42%
11
10
15
7
Employment
Income
54%
16%
27%
53%
20%
Sciences and Arts)
No qualifications
17%
14%
12%
2%
d
g
e/
ye
nin
im e
m
plo
rai
-ti oyee art-t oye
t
l
l
m
In
P pl
Fu pl
lf-e
Em
Se
Em
e/
45%
21%
N
e
on
18%
no response
The group of autonomous decision-makers comprises a comparatively
large portion of the higher-earning population, with 16% having an
above-average income. They are also the ones who, in comparison, are
better educated, with 27% having a university or other post-secondary
education degree.
Regional differences are noticeable, particularly in the north-western
region and Zurich – autonomous decision-makers are strongly represented in these regions, to the detriment of Ticino, Bern and the
western region. Figure 28 summarises the most important sociodemographic characteristics.
feel fairly treated and assess
risks in the relationship to their
insurance provider as low.
Autonomous decision-makers’ perceived risk is low as regards the time,
financial or coverage-related aspects of insurance. They consistently
report that they are treated fairly by their insurance provider when
it comes to a claim. This perception applies to the compensation
they expect as well as to the interaction with insurance-company
98
representatives and the entire claims process. Overall, autonomous
decision-makers feel secure as a result of the high level of consumer
protection measures in Switzerland. 61% maintain that they know their
rights as policyholders. Even if their risk perception is low in respect to
their relationship to insurance providers, autonomous decision-makers
are cautious:
“On the one hand, I do have confidence in them but, on the other, my
experience has been that it can take a great deal of time to assert your
rights. That’s why ’confidence’ is putting it a bit too strongly. Because if I
first have to fight an eternity for my rights, I can’t rely on them. Then it’s
just a struggle to get my rights.”
71% of autonomous decision-makers say that they study the topic
thoroughly as soon as they want to take out insurance or make changes.
Autonomous decision-makers name relevance as the reason for their
interest. One interviewee admits that since he’s become self-employed,
the topic has taken on a lot more significance for him. He studies it
considerably more intensively than he used to and obtains his information from three main sources: the internet, talking to friends and
acquaintances, and through an insurance agent.
Other autonomous decision-makers also avail themselves of various
sources of information but still tend to be passive in their information
behaviour and do not exploit the full potential of their sources. The advice of third parties, industry experts such as insurance agents, brokers
or bank advisers, as well as friends and family, is important to autonomous decision-makers. When talking to advisers, they particularly appreciate their know-how and their professional handling of questions:
are not out of their depth when
it comes to insurance issues.
“I trust my adviser because I have the feeling that he knows what he’s
talking about. If you ask him, he has a good grasp of the material and if
there’s something he doesn’t know, he doesn’t try to fob me off with just any
answer, but tells me straight out and says he’ll call me up as he needs to ask
me a few more questions, or that that differs from case to case and he can’t
give a simple yes of no right now. Then he basically refuses to give me any
answer; he doesn’t tell me just any old thing so as to give me an answer – he
really looks into it and that gives me a good feeling.”
On the whole, consumers of this type do not feel out of their depth
when dealing with insurance topics (52%). They appreciate the idea at
the heart of insurance and accordingly spend part of their time looking
for solutions suited to their needs. Nonetheless, just short of 75% do
not have the feeling that taking out insurance takes an exceptional
amount of time. A possible reason for this is the greater knowledge
that autonomous decision-makers generally have compared with the
Being well prepared for consultation sessions is a must for
autonomous decision-makers.
other two types. They are usually good at numbers, are interested in
details and ask precise questions when they want to know something.
When autonomous decision-makers do decide to get advice, they start
by actively researching the topic themselves so as to be prepared for the
consultation session and to be able to compare the results of their own
research with the professional advice they receive (this holds for 79%
of those surveyed in this group). This behaviour also became clearly
evident in the interviews – advisers are no substitutes for researching
and collecting information on one’s own; they complement it by
reworking and structuring certain information. 66% of autonomous
decision-makers have great confidence in their adviser and in them
putting together the best possible tailor-made offer. Even after taking
out insurance they make use of the opportunities that present themselves to review their existing insurance coverage. Despite consultation,
over 60% make their decisions themselves. Only a third says that they
make decisions in agreement with their adviser. This type rejects the
comprehensive delegation of insurance decisions.
The independence of advice is
also not a clear issue for autonomous decision-makers.
Autonomous decision-makers do not generally want to know their adviser’s commission (this applies to insurance agents (43%) and advisers
(47%) alike) or do not know what they should say about that. Opinions differ on to the question of who tends to act free of self-interest.
A few autonomous decision-makers (28%) name the insurance agent,
but 39% see no difference between brokers and insurance agents in
this regard. Coupled with their confidence in their adviser, these results
show that autonomous decision-makers, despite having sound knowledge, need somewhat more clarity with regard to the independence of
the person advising them.
How vulnerable are autonomous decision-makers?
Compared with delegators and pragmatists, autonomous decision-makers are the least susceptible to making wrong decisions. Their interest in
insurance and their awareness of their personal responsibility, which is
not only reflected in their self-perception but is also confirmed by the
perception of others, often protect autonomous decision-makers from
making decisions that are too hasty or not thought through.
are no more vulnerable than the
average.
In summary, it can be said that, as regards vulnerability, autonomous
decision-makers are capable of finding appropriate information about
purchasing decisions on their own and, in the event of a claim, can
actively call on various forms of support. For these reasons, there is no
immediate, above-average vulnerability for this type, neither for the
purchasing decision nor in the event of disputes.
100
Three questions for autonomous decision-makers
How did you find your broker?
Autonomous decision-maker: “He is the broker of a good friend of mine and she highly recommended him. He came
by and we had a really very casual chat, and then I simply said that I expect this and that and don’t want to be talked
into anything, but really wanted to decide myself, and he really kept to that. And, yes, somebody actually put me on to
him, a recommendation.”
Insurance usually means documentation and contracts. To what extent do you try to come to grips with
that?
Autonomous decision-maker: “That’s just what I tried. That’s all well and good, it all sounds very good. Where it gets
more difficult and also where the language becomes tremendously difficult, is, of course, when it’s about legal matters.
For me, all that fine legal language is difficult to judge. You really have to have some help to know exactly what the
sentences mean. For that reason, I don’t like doing it and I don’t think I would do it anymore, because for me it is not
worth the time and effort to pick it up again yourself and to read through all the terms and restrictions again and try
to understand them because there is always a restriction of a restriction, it’s always so convoluted.”
What are the talks with your broker like?
Autonomous decision-maker: “I let him get on with it and just tell him what I expect. I tell him that he has to tell me
where the catch is, so to speak, and what the benefits are. I always want products that are more or less comparable
with each other. Somehow they’re all comparable with each other. It’s the same with mobile telephone contracts.
Somehow they’re all similar to each other but it takes time to find out where the benefits and where the drawbacks
are. That’s exactly what I expect from him, that he shows me which policy has which benefits and which drawbacks
compared with another one.”
6
Evaluation of regulatory
consumer protection measures from
the viewpoint of the consumer
6
6 Evaluation of regulatory consumer protection measures from the viewpoint of the consumer
–– The Swiss Insurance Contract Act dates back to 1908. It needs a thorough
revision in order to reflect current market conditions.
–– In the opinion of the Swiss parliament the Act need a partial revision geared
towards asserting the consumer’s position on the market.
Any contractual relationship between a consumer and an insurance
provider is subject to the Insurance Contract Act (VVG). The relationship between insurance brokers and their customers is governed by the
Swiss Code of Obligations (mandate law). The revision of the Federal
Insurance Supervision Act (VAG) entered into force on 1 January
2006 and fundamentally transformed Swiss Insurance Supervision law.
Even though a partial revision of the VVG concurrently implemented
regulations for various important and urgent concerns, the Act dates
back to over a hundred years ago and no longer reflects today’s concerns
and preoccupations in an adequate manner. On 7 September 2011 the
Federal Council called for a total revision of insurance contract law
directed mainly toward strengthening the consumer’s position.41 The
Council of States’ decision of 20 March 2013 rejected this proposal and
referred the matter back to the Federal Council.42
The Swiss parliament rejected
a total revision of insurance
contract law.
Nevertheless, a partial revision of the VVG was to make sure that it
took due account of current market conditions and strengthened the
position of the consumers. The following chapters discuss whether
some of the drafts debated in parliament effectively correspond to the
interests of the consumers and help to decrease their vulnerability in
insurance matters. Drafts discussed have been chosen on the basis of
their importance and consequences. We also asked whether consumers
were able to take a reasoned position on the measures proposed. In
the end, four aspects of insurance contract law have been more closely
examined: the right of cancellation, the right of termination, pre-contractual information requirements and pre-contractual disclosure obligation. These topics have been complemented by research into the
perception, functions and structure of the ombud system. Provisions
for strengthening the ombud system will be anchored in the Financial
Services Act (FIDLEG).
Nevertheless, a partial revision
of the VVG was to make sure
that it took due account of
current market conditions and
strengthened the position of the
consumers.
However, all of these proposals and measures are associated with additional costs. In order to take these costs into account, we looked at both
the extent of regulation in Switzerland from a consumer’s viewpoint
and at the consumer’s willingness to pay for additional regulations in
23% of the respondents hoped
for more regulation, even if they
might entail additional costs.
41 The German version of the Federal Council’s Message on the total revision of the Federal
Act on Insurance Contracts (VVG) can be found at: www.admin.ch/opc/de/federal-gazette/2011/7705.pdf
42 Information on the rejection (in German) can be found at: www.parlament.ch/ab/frameset/d/n/4906/397156/d_n_4906_397156_397157.htm
the insurance industry. Figure 29 summarises the assessments of the
desired extent of regulation and the corresponding costs. Roughly
a third (28%) of those surveyed said the actual extent of consumer
protection made them feel insecure, whereas 39% said they felt fairly
secure. 47% of those surveyed voiced their support for increasing insurance regulation, however, only half of the supporters also expressed a
willingness to bear the corresponding costs. It can thus be assumed that
about a quarter of the Swiss population feels a serious need to increase
regulation, even if there may be costs involved.
Increasing safety/security does
not necessarily correspond to
tighter regulation. In the eyes of
the consumers, the role of the
state is not so much that of a
protector that that of an adviser.
However, increasing safety/security does not necessarily correspond to
tighter regulation. To a large extent, the state got assigned a supporting/
advisory role by the consumers surveyed. In the context of insurance,
46% of those surveyed expressed a desire for official support in the
decision-making phase. It also became clear, that consumers did not
hope for protection per se, but rather wanted to be empowered in their
decision-making. This is the tenor of the statements about our five areas
of research expressed by those surveyed and explained in more detail
in the following chapters.
104
Fig. 29: Assessment of the extent of current level of regulation and willingness
to pay for additional regulation
Level of regulation from the consumers’ standpoint
% of those surveyed, n = 1027
The high level of consumer protection in
the field of insurance makes me feel safe.
strongly
disagree
5 8
neutral
15
strongly
disagree
The official authorities should offer more
support about what insurance to take out.
11
10
neutral
9
strongly
disagree
The state should regulate the insurance market more
tightly in order to protect consumers.
12
8
strongly agree
32
24
neutral
10
23
23
10 6
strongly agree
22
13
11
strongly agree
19
13
15
Costs of regulation
I am prepared to accept a marginal increase in my insurance
premium (up to 5%) for additional consumer protection.
24%
I would be prepared to accept an increase of some 10%
in my insurance premium for additional consumer protection.
50 %
5%
3%
18%
I want additional consumer protection. Consequently I am prepared
to accept premium increases, regardless of how high they are.
I am prepared to pay higher taxes in order to cover the costs.
I am not prepared to pay for additional consumer protection.
% of those surveyed wanting tighter
regulation, n = 486
6.1 Right of cancellation
–– All insurance contract barring collective personal insurance contracts should
include the right of cancellation.
–– Those surveyed are clearly in favour of such a right,
–– even though they do not agree whether this right should be enshrined in
a regulation or take the form of a voluntary commitment by the insurance
industry.
In Switzerland, cancellation
rights are severely restricted.
EU consumers are entitled to withdraw from contracts concluded
elsewhere than in shops within 14 days, without stating an explicit
reason.43 This is true for any goods not made to order or clearly personalised and bookings for unspecific dates (the rule therefore does not
apply to e.g. concert tickets). These rules are intended mainly to protect
consumers from abusive E-business contracts or undesirable effects of
telephone sales. In Switzerland, by contrast, cancellation rights are severely restricted and currently apply only to doorstep sales with a value
of over CHF 100, leasing contracts and contracts with dating agencies.
All insurance contracts barring
collective personal insurance
should include the right of
cancellation.
It is planned that the revised VVG include cancellation rights for all
insurance contracts. The corresponding provision will probably follow
the EU model and set a revocation period of 14 days. Collective personal insurance contracts will be exempt from this provision. Given the
fact that insurance contracts often have far-reaching consequences or
are concluded for a term of several years, a cooling-off period should be
provided for consumers following conclusion. Thus, it will be possible
to counteract potential sales pressure during a consultation.
VVG draft consultation paper: Art. 7 Right of cancellation
1. Policyholders are entitled to withdraw from their declaration of intent to
conclude or modify an insurance contract and/or their acceptance of such
contracts by means of a written notice of withdrawal.
2. The right to such cancellation expires two weeks after the contract has been
concluded or modified.
3. The cancellation period shall be deemed to be met it such notice has been
either received by the insurance provider on the last day of the cancellation
period or handed over to the Swiss Post on the same date.
4. This provision does not apply to collective personal insurance contracts,
provisional coverage and agreements with a term of less than one month.
Those surveyed are clearly in
favour of such a right…
61% of those surveyed expressed themselves in favour of a right of
cancellation. Only some 16% can see no benefits in such a right. 49%
43 More (German-language) information on consumer withdrawal rights in Europe can be
found at: http://europa.eu/youreurope/ citizens/shopping/shopping-abroad/returning-unwanted-goods/index_de.htm
106
of consumers are even willing to bear the costs associated with a right
of cancellation. Potential costs associated with such a right have next
to no influence on consumer preferences. Only 7% of those surveyed
cite cost issues as a reason to renounce the right of cancellation. Thus,
it can be assumed that a right of cancellation is beneficial to consumers.
In Switzerland, the statutory cancellation rights are often complemented by cancellation rights granted on a voluntary basis by the providers
of goods and/or services. When buying clothes, for example, it is
common practice that consumers can give them back. There is no clear
answer to the question whether this is due to a statutory cancellation
right or to a voluntary commitment by the industry. As is shown in figure 30, 77% of the consumers surveyed do not attach any relevance to
the question whether cancellation rights should originate with the state
or the insurance providers. Only 6% pronounce themselves clearly in
favour of statutory regulations, whereas 11% express a marked preference for voluntary commitments. 5% of those surveyed even state that
matters should be left to the market. In this case, insurance providers
could decide whether they wanted to offer a right of cancellation as
part of their services.
…even though they do not
agree whether this right should
be enshrined in a regulation or
take the form of a voluntary
commitment by the insurance
industry.
Fig. 30: Cancellation right, % of those surveyed, n=1,027
fairly low
... attractive, even if it entails
additional costs
neutral
35
...unnecessary
8
15
fairly low
neutral
5
29
10
11
7
4 5
fairly high
20
13
77
Indifferent
Voluntary commitment
fairly high
23
6
16
11
5
Statutory regulation
Market
Asked about the (potential) right of cancellation, the autonomous
decision-makers among the three consumer types described in chapter
5 generally voiced a strikingly clear opinion (e.g. in favour of market
self-regulation or underlining the attractiveness and necessity of such
a right) as is shown in figure 31. Delegators, on the other hand, most
often purport to be indifferent and pragmatists are at an intermediate
level. These results cannot really surprise given the level of financial literacy of each group. As the most financially literate group, autonomous
decision-makers pass more confident judgments and differentiate their
Consumer types differ
considerably.
statements. Delegators avoid making decisions on insurance matters on
their own. This is the reason why a good third of them does not feel
able to pronounce themselves clearly on the potential introduction of
a cancellation right. Interestingly, however, the delegators constitute
the largest group of nay-sayers in this context. The delegators’ tight
relationship with their adviser of choice and the fact that these advisers often make their insurance decisions or considerably simplify the
decision-making process may be at the root of this phenomenon. As
soon as an insurance contract has been recommended and consequently
signed, the delegators’ interest dwindles as does their involvement.
Therefore, those 22% cited do not see any need to introduce a right
of cancellation. However, the other groups are not sharing this viewpoint – among the pragmatists, a mere 12% opposes the introduction
of a right of cancellation, among the autonomous decision-maker that
number rises to 16%.
108
Fig. 31: Attitude of the three consumer types towards cancellation rights
(D – delegators, P – pragmatists, A – autonomous decision-makers),
D
P
A
D
P
A
D
P
A
43
48
52
16
23
27
41
29
21
50
60
61
11
15
21
39
25
18
22
12
16
43
65
68
35
23
16
52
66
74
11
9
11
37
25
15
Attractive,
even if it entails
additional costs
State
regulation
No right of
cancellation
Market selfregulation
Agreement
Rejection
Indifference
6.2 Right of termination
–– The legislator proposes the introduction of an ordinary right to terminate
the insurance contract after a maximum term of three years.
–– An ordinary termination right after one year would be perceived by
consumers as a restriction of market forces.
Long-duration contracts are still
the rule in Switzerland.
Especially in household insurance, a five-year term is quite common.
Some contracts also have a duration of ten years. Insurance providers
mostly cite the considerable consultation and administration costs as
arguments against shorter contract durations. Higher commissions for
insurance agents also make for a proliferation of multi-year contracts.
Some insurance providers offer customers a premium discount in
exchange for their flexibility to react to market changes. Moreover, for
most consumers premiums are not set once and for all.
The legislator proposes the
introduction of an ordinary
right to terminate the insurance
contract after a maximum term
of three years.
The legislator therefore proposes the introduction of an ordinary
right to terminate insurance contracts. Consumers would be entitled
to terminate their insurance contracts by the end of the third year,
regardless of their duration. This new legal provision would not apply
to life insurance contracts. At the moment, the debate also includes
other models such as an ordinary right of termination after the first
year, a unilateral termination right for supplementary health insurance
contracts (health insurers would forfeit their termination rights after a
certain time) or the annulment of termination rights in case of claims.
VVG draft consultation paper: Art. 52 Ordinary right of termination
1. The contract can be terminated for the first time at the end of the third year
and at the end of every following year thereafter by giving three months’
notice.
2. The parties may agree on earlier termination options. Notice periods must be
of equal length for both parties.
3. The above is subject to the particular provisions for life insurance and insurances supplementing social health insurance according to art. 7 para. 7 and 8
of the Federal Health Insurance Act (KVG) of 18 March 1994.
An ordinary termination right after one year would be perceived
by consumers as a restriction of
market forces.
Consumers have quite a good grasp of the correlation between premium level and contract duration. Taking household insurance as an
example, we asked consumers to choose one out of three options. The
results are shown in figure 32. The available options differ as to contract
duration (1 to 3 years) and premium (discount of 10–20% for longer
contract durations). 78% of those surveyed react positively to the
option of increasing the contract duration and receiving a premium
discount. A discount of 10% is already deemed attractive. Discounts
of less than 10% have not been included in the test. However, this
110
legitimates the conclusion that an ordinary termination right after one
year would be perceived by consumers as a restriction of market forces.
Among the three consumer types, autonomous decision-makers are
most interested in reducing their premiums as much as possible instead
of being able to terminate their contract after one year. Interestingly,
delegators tend more strongly towards higher premiums for shorter
contract durations than the two other groups. A partial explanation
of these results consists in the fact that groups with a higher sense of
personal responsibility and a higher level of financial literacy make
informed decisions and do not perceive a need to frequently reassess
these. Delegators, on the other hand, do quite a lot of research (also by
contacting advisers), the results of which can trigger changes. For this
reason, 57% of the delegators surveyed prefer contacts with shorter
durations.
Fig. 32: Termination right, % of those surveyed, n=1,027
Contract A
– Basic duration: 1 year
(no carly termination
during the basic
duration)
– Premium:
CHF 250 / month
Contract B
– Basic duration: 2 years
during the basic
duration)
– Premium:
CHF 225 / month
Contract C
– Basic duration: 3 years
during the basic
duration)
– Premium:
CHF 200 / month
Delegators
27 %
30%
43 %
Pragmatists
23 %
24%
53%
18 %
20%
62 %
Total
22 %
24 %
54%
6.3 Pre-contractual information requirements
–– Extending information requirements is currently under discussion.
–– Pre-contractual information is intended to educate customers.
–– Most customers set store by information about insurance benefits and
exclusions from coverage.
Pre-contractual information
is intended to improve decision-making.
For the consumer, taking out insurance entails perceived risks. On the
one hand, the value of insurance cannot easily be assessed as it is intangible and only realised at a later point in time, if at all. On the other
hand, the perceived purchase risks are high. Consumers tend to doubt,
for example, whether the promised insurance benefits will materialise
in case of a claim and whether they have assessed their risk situation
correctly. In order to enable consumers to make informed decisions
and avoid misinterpretations, the right information needs to be tailored
to the customer during the entire customer journey. Pre-contractual
information can address part of the consumer’s concerns.
Extending information requirements is currently under
discussion.
Currently, the law prescribes that consumers have to be informed about
the identity or their insurance provider and the relevant contract terms
in a way that is easily understandable, before the contract is concluded.
This is meant to ensure that consumers know what kind of insurance
they are buying. During the political discussions about a total revision
of the VVG, the idea of enlarging this catalogue was introduced. The
current debate about the partial VVG revision also emphasises certain
aspects such as information on gender-related premium discrimination.
VVG art. 3:
1. Before conclusion of the insurance contract, the insurer has to inform the potential policyholder about the identity of the insurance provider and the substantial content of the insurance contract. The insurer has to provide the following information:
a. insured risks;
b. extent of the insurance coverage;
c. premiums due and other obligations of the potential policyholder;
d. duration and termination of the insurance contract;
e. basis for the calculation of surplus participations and the principles and
methods of surplus distribution
f. repurchase and paid-up values;
g. processing of personal data including the purpose and modalities of data
collection, the data recipient and storage.
112
The primary intention of pre-contractual information is not so much
to safeguard the adviser in a consultation, but to educate the customer. Knowledge about the information needs in this late phase of the
decision-making process has therefore a pivotal function. Pre-contractual information requirements act as a kind of “package leaflet”
to the contract before the decision is finalised by contract. Therefore
consumers have been consulted about the potential content of such
leaflets. Focusing on the most relevant details turns out to be crucial if
consumers are to effectively benefit from pre-contractual information
without getting out of their depth due to information overkill while
reaching the acme of the decision-making phase. Premiums due were
not included in the survey, however, they obviously are a fundamental
feature of contractual information. The survey distinguished between
non-life and life insurance because of the potentially significant investment and withdrawal risks in the latter.
Pre-contractual information is
intended to educate customers.
Fig. 33: Pre-contractual information in household insurance,
60
Insurance benefits
11
Exclusions from cover
Notice periods
Criteria for setting premium
16
38
8
14
6
13
3 6
8
8
16
25
22
First priority
Insolvency
Complaints mechanisms
2 4
Data protection
3 4
Commission of the adviser
12 3
9
5
Second priority
Third priority
Fig. 34: Pre-contractual information in life insurance,
51
Insurance benefits
9
Exclusions from cover
Investment risks
6
Withdrawal from contract
7
Notice periods
Commission of the adviser
23
14
4
Insolvency of the insurer
4
14
16
10
9
6
8
15
11
4
Criteria for setting premiums
15
8
8
7
First priority
11
Second priority
Data protection
Complaints mechanisms
4
2 3 4
7
Third priority
22 4
Insurance benefits and exclusions from coverage are primary
information requirements.
The law requires that consumers be informed about the insured risks
and the extent of coverage. In non-life insurance 84% of those surveyed
listed an overview of the insurance benefits among the primary requisite information. In life insurance, their number amounts to 74%.
These results are illustrated in figure 33 and figure 34. With a view to
information requirements, insurance benefits doubtlessly have the same
importance as premiums. Consumers, however, also rank exclusions
from cover together with insured risks among the primary contract
information (non-life insurance: 65%, life insurance: 46%). The law
also prescribes information about the duration and the termination of
insurance contracts. For non-life insurance, consumers tend to share
this view, as 47% of those surveyed attach major importance to this
information. In life insurance, notice periods are perceived as being less
crucial. Consumers and insurance providers alike view life insurance
as a long-term business with a lesser need of flexibility in terms of
time. Here, investment risks (36%) and withdrawal rules (35%) are
part of primary information. The current political debate on premium
discrimination seems justified to consumers – at least as far as non-life
insurance is concerned. 42% of those surveyed would like to know
more about the various charges making up their premiums.
Complaint mechanisms and
commissions might conceivably
be included as well.
All the other factors are less important to most of the participants in
the survey. Complaint mechanisms might conceivably be included in
the pre-contractual information requirements as well, as 15% of those
surveyed (life insurance: 8%) consider this a primary pre-contractual
114
information requirement. Information on the adviser’s commission is
significantly more important in life insurance (22%) than in non-life
insurance (5%). Consumers tend to perceive life insurance contracts as
a longer-term obligation. Such contracts also entail a higher financial
risk. Therefore, the fact that consultations might be skewed by commissions is apparently more critical in this line than in others. Information
on data protection ranked surprisingly low in importance among those
surveyed. Although information on the processing of personal data is
already anchored in law, only 11% of those surveyed (non-life insurance) and 9% (life insurance) set store by pre-contractual information
on data protection. They act on the assumption that the insurance
provider handles their data carefully.
All three consumer groups concur as to the main five pre-contractual
information requirements as is shown in figure 35. The Top Five for life
and non-life insurance are identical for all consumer types with slight
differences in ranking (ranks 3 to 5).
Fig. 35: Top Five pre-contractual requirements (by consumer type), n=1,027
Delegators
Pragmatists
Top 5 – household insurance
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
Insurance benefits
Exclusions from coverage
Notice periods
Complaint mechanisms
Insurance benefits
Notice periods
Insurance benefits
Notice periods
Top 5 – life insurance
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
Insurance benefits
Investment risks
Withdrawal from contracts
Notice periods
Insurance benefits
Notice periods
Investment risks
Insurance benefits
Notice periods
Investment risks
6.4 Pre-contractual disclosure obligations
–– Pre-contractual disclosure obligations are to be limited to events in which
there is a direct causal link
–– Most consumers do not understand causality
–– They need to be informed about the extent of their disclosure obligations.
Consumers are obliged to
disclose matters relevant to
the contract to their potential
insurance providers, before the
contract is concluded.
Consumers are obliged to disclose matters relevant to the contract to
their potential insurance providers, before the contract is concluded.
This is to ensure that the insurance providers are able to assess their
risks correctly and set their premiums in a realistic manner. However,
pre-contractual disclosure obligations have a lot to do with consumer
protection. On the one hand, abuses of the insurance system increase
the total claims burden and, consequently, the premium burden for
consumers. On the other, honest consumers also carry significant risks.
A lack of understanding of the reasons why insurance providers need
certain, in some cases highly sensitive, information, makes for intentional (but not malicious) concealment – out of shame, for example,
or out of concerns about passing data on to unauthorised persons.
Customers therefore run a risk of contracts getting terminated or benefits being refused. If an insurance provider insists on its rights citing
a breach of disclosure obligations, the lack of understanding at the
consumer’s may entail significant administrative and legal costs which
are nefarious to both insurers and consumers.
Pre-contractual disclosure
obligations are to be limited to
events in which there is a direct
causal link.
In its draft consultation paper for the total VVG revision, the legislator
tried to defuse this sensitive issue in various ways, such as limiting the
disclosure obligation to facts, which were or should have been known
to the consumer when concluding an insurance contract. Currently, insured persons may be obliged to answer questions by making
forward-looking statements in their insurance application. In court,
incorrect forward-looking statements will generally not be taken into
account (Fuhrer, 2008). The legislator also intended to distinguish between intent, contingent intent and negligence, thus mitigating the risk
of consumer’s lack of understanding to some extent at least. The partial
revision of 2004 only freed the insurer from having to compensate for
damages if an adequate causal nexus between hazards and damages
could be established. The insurer is still entitled to terminate the contract. In this context, the legislator wished for a more precise formulation: termination was to be possible only if the insurer had assessed the
risk differently and such difference worked out in his disfavour so that
he would have concluded a different contract or none at all.
116
VVG art. 6:
1. If the party required to notify fails to (correctly) communicate a material risk
issue of which he/she was or should have been aware and which he/she was
asked to state in writing, the insurer will be entitled to give written notice of
the corresponding contract. Such termination notice will be effective from the
date of its delivery to the policyholder.
2. The termination right expires four weeks after the insurer became aware of
the breach of the disclosure obligation.
3. If the contract has been terminated according to para. 1, the insurer is no
longer obliged to perform its contractual duties concerning insured events
that already have materialised, if their occurrence or scope has been affected
by the risk issue concealed or misrepresented. The insurer is entitled to
reclaim payment in the case of benefits already paid out that are affected by
the failure to disclose or the inaccurate disclosure of such a risk issue.
Consumers had to judge two scenarios on causality during the survey.
They were designed to make the consumer reflect on the situation of
someone else instead of his/her own in order to exclude any personal
bias. The first scenario refers to a failure to comply with pre-contractual
disclosure obligations. However, there is no causal link to the subsequently materialising insured event. The second scenario also refers to
a failure to comply with pre-contractual disclosure obligations. In this
case, however, there is a causal link to the subsequently materialising
insured event.44
Two scenarios have been used in
the survey.
As seen in figure 36, 63% of those surveyed are of the opinion that
the insurance provider has to bear the costs of the event in the first
case, as there is no causal nexus between the lack of disclosure (chronic
asthma) and the insured event (glaucoma). 37% of the consumers surveyed think it fair that the insured person has to bear the costs. 18%
of those surveyed even think that further measures are justified such as
terminating of the insurance contract, withholding the premium paid
and registering the “offender”.
65% of those surveyed are of
the opinion that the insurer has
to bear the cost if there is no
causal nexus.
44 The full scenarios can be found in the appendix.
Fig. 36: Scenario without any causal nexus, % of those surveyed, n=1,027
The insurance provider hat to settle the claim anyway,
that’s their job, after all.
3% 5%
13%
The insurance provider has to settle the claim, as the two illnesses
(asthma and glaucoma) are not linked to each other by a common cause.
10%
The insurance provider is entitled to reclaim the costs from
the insured person and to adjust the premium.
18%
the insured person and to terminate the insurance contract.
51%
The insurance provider is entitled to reclaim the costs from the insured
person, to terminate the contract and to keep the remainder of the premium.
The insured person should be registered in order
to protect other insurance providers.
In scenario 2, 37% of those surveyed consider that the insurance
provider has to bear the costs of the insured event, although there is a
causal nexus between the failure to comply with the disclosure obligations (multiple property damage in the past) and the insured event (a
similar incident). 29% of those surveyed would reclaim the benefits and
modify the premium, 26% are in favour of terminating the insurance
contract and 9% would proceed to register the insured person in order
to protect other, future, insurers.
45 % of those surveyed are of
the opinion that the insurer has
to bear the cost if there is a
causal nexus.
Fig. 37: Scenario with a causal nexus, % of those surveyed, n=1,027
The insurance provider hat to settle the claim anyway,
that’s their job, after all.
9%
The insurance provider hat to settle the claim anyway, as the insured
person could not have known that his property would get damaged again.
19%
8%
the insured person and to adjust the premium.
18%
17%
the insured person and to terminate the insurance contract.
The insurance provider is entitled to reclaim the costs from the insured
person, to terminate the contract and to keep the remainder of the premium.
29%
to protect other, future, insurance providers.
Most consumers do not understand causality.
These results are astonishing in their diversity – the idea of fairness is
being interpreted in various ways by the respondents. A scrutiny of
the group in favour of the insurer’s bearing the costs under scenario 1
(63%) shows that 55% of this group would want the insured person to
repay the benefits under scenario 2. 45% of this group still think that
the insurer is obliged to bear the costs, even though there is a causal
link in this case. This means that only 35% of the overall population
118
view causal links as important for the assessment of a case. A large part
of the population does not have the necessary awareness of the issue.
Astonishingly, numerous consumers (36%) also do not realise that an
insurer can withdraw from its payment obligations – and this despite
the fact that the causal link is very much in evidence in scenario 2. This
can be interpreted as evidence of a lack of financial literacy.
Figures 38 and 39 show the results broken down by consumer group. If
there is no causal nexus over half of each group thinks that the insurer
is obliged to pay. Quite strikingly, perceived fairness varies with the
(non-)existence of a causal nexus both in the pragmatists’ and in the
autonomous decision-makers’ groups. Delegators on the other hand are
relatively stable in their perceptions irrespective of the potential causal
nexus. Under both scenarios, 48% to 57% of the delegators hold the
insurer liable for the claims payment; roughly a quarter (24% to 28%)
thinks a termination and possibly financial consequences should follow
the concealment/misrepresentation. On a third of the delegators holding the insurer liable under scenario 1 is able to recognise the causal
nexus in scenario 2. This points to a lack of literacy regarding causalities in most delegators (two thirds of the group surveyed). Hence, a
major part of the delegators’ group does not realise that an insurer may
withdraw from its payment obligations under certain circumstances.
A major part of the delegators’
group does not realise that an
insurer may withdraw from
its payment obligations under
certain circumstances.
Fig. 38: Scenario without causal nexus, % of those surveyed, broken down
into consumer groups (A – autonomous decision-makers, P – pragmatists,
4%
9%
5%
A
2% 5% P
9%
6%
6% D
The insurance provider hat to settle the claim
anyway, that’s their job, after all.
7%
The insurance provider has to settle the
claim as the two illnesse (asthma and glaucoma)
are not linked by a comon cause.
15 %
18 %
12%
The insurance provider is entitled to
reclaim the costs from the insured person
and to adjust the premium.
19%
The insurance provider is entitled to reclaim
the costs from the insured person and to
terminate the insurance contract.
20% 16 %
39 %
53 %
55%
The insurance provider is entitled to reclaim the
costs from insured person, to terminate the
contract and to keep the remainder of the premium.
Fig. 39: Scenario with a causal nexus, % of those surveyed, broken down
into consumer groups (A – autonomous decision-makers, P – pragmatists,
15 %
8%
9%
anyway, that’s their job, after all.
A
11 %
anyway, as the insured person could not have
known that his property would get damaged again.
P
19 %
7%
8%
7%
D
26 %
10 %
17 % 13 %
19 %
23%
24%
22 %
30%
32 %
the costs from the insured person and
to adjust the premium.
the costs from the insured person and to
terminate the insurance contract.
The insurance provider is entitled to reclaim the
costs from the insured person, to terminate the
6.5 Ombud system
–– The Federal Department of Finance intends to extend the competencies of
the Swiss insurance ombud offices.
–– However, neither the existence nor the functions of the ombud office are
widely known.
In Switzerland, two ombud
offices take care of insurance
matters.
In case of a disagreement between the customer and the insurance
provider concerning the extent of coverage, the level of damage or
the attribution of the fault, insured persons can refer the case to the
“ombudsman of private insurance and of suva” or the ombud office of
health insurers, as the case may be. These private-sector institutions
act out of court as arbitrators and mediators between the parties and
support consumers free of charge in legal matters concerning their
insurance. Moreover they provide guidance and advice to insurance
customers. This means that ombud offices may, at their own discretion,
request information from insurers. However, they can neither represent
insurance customers nor issue instructions to the insurance providers.
Nevertheless they provide valuable information, guidance and mediation services. Ombud offices contribute to closing the information
gap between consumers and insurance providers by giving the former
professional guidance free of charge.
120
In the context of the FIDLEG revision, the Federal Department of
Finance proposes to extend the competencies of the ombud offices.
The Federal Department of Finance recommends either of the two
following forms of organisation (FDF 2013):
The Federal Department of
Finance intends to extend the
competencies of the Swiss
insurance ombud offices.
– Option 1: Ombud office with mandatory affiliation, authorised to
provide recommendations
– Option 2: Decision-making authority in the form of a statutory
arbitrator.
Under to the first option, the ombud offices would still be unable to
settle any issues. Providers of financial services, however, would be
obliged to join an ombud organisation and participate in its procedures. Under the second option, ombud offices would be assigned
decision-making competencies for claims up to a certain amount. It
would be subject to judicial control by a court. The FDF also wants to
provide for the financial risks of the insured persons in connection with
insurance litigation. Under the first option, the ombud offices would
be entitled to examine the case and request that the insurance providers
pre-finance the cost of civil proceedings. Whatever the outcome of the
proceedings, the costs would have to be borne by the insurance provider. The alternative (option 2) consists in a cost-free and unstructured
procedure the costs of which are being borne by the ombud office and
hence by the taxpayers themselves.
The survey asked consumers whether they knew about the existence of
an ombud office for insurance matters, its function and the possible
ways and means of financing such an office. The results are shown in
figure 40. Awareness on the existence of an ombud office has been
tested indirectly via the question: “Would you be in favour of creating
an ombud office for insurance matters? ” Just 24% of those surveyed
were aware of the existing ombud office and therefore able to answer
the question correctly.
Consumers do not know about
the existence of ombud offices.
Fig. 40: Ombud office
Yes
Existence of an ombud office
Would you be in favour of
creating an ombud office
for insurance matters?
26%
No
44%
Such an office exists already
24%
I don’t know
6%
Organisation of the ombud office
There is an ombud office for all lines of insurance.
21%
There are two ombud offices: one for health insurance
matters and one for life and non-life insurance.
27%
Each line of insurance (property insurance, life insurance,
health insurance) has its own ombud office.
24%
28%
I prefer not to answer this question.
Role of the ombud office
Mediation services
7
93
Support in the event of litigation
15
85
General advice in insurance matters
51
Legal aid
56
Correct
49
44
Incorrect
Financing the ombud office
19%
The ombud office should be financed by the taxpayer.
The ombud office should be financed by the insurance providers.
56%
The ombud office should be financed by the insurers,
provided its independence is guaranteed.
25%
122
The question about the number of existing ombud offices for insurance
matters (one, two or several) also was answered correctly by just 24%
of those surveyed. The relatively limited knowledge about the ombud
office further colours the answers about its role. 93% of those surveyed
think that it acts as a mediator and supporter in case of conflict, whereas 85% think it dispenses information in such cases. However, 49% of
the persons surveyed think that the ombud office also provides information on general insurance matters, and 44% seem to think it takes
legal action on behalf of consumers. Whatever the purpose of these
functions, it can safely be said that the consumers have rather limited
knowledge of the ombud office. Viewed with an eye towards consumer
protection, this is problematic as the consumers already have a means
of minimising the information gap in case of litigation – unbeknownst
to them. The current organisation of the ombud office is that of a foundation, financed by the insurance industry. The consumers tend not to
believe that its independence might consequently be threatened. 81%
of those surveyed keep favouring the insurers’ financing the ombud
office. However, the survey does not reveal, whether the ombud office
should be authorised to make decisions. We also do not learn whether
the legal risk of the consumers has any major influence on their ability
to defend themselves in case of litigation.
By breaking down the results to the various consumer groups it can be
seen that the delegators are the least informed about the existence of an
ombud office (16%) and its possible functions (figure 41).
Fig. 41: The ombud office, % of those surveyed by consumer group, n=1,027
Delegators
16%
Existence of the ombud officen
Role of the ombud office
83
General advice in insurance matters
Pragmatists
20%
89
66
85
Autonomous
decision-makers
33%
92
88
95
61
51
Support in the event of litigation
44
Mediation services
37
32
Legal aid
Financing the ombud office
63
The ombud office should be
financed by the taxpayer.
57
44
35
The ombud office should be financed
by the insurance providers.
21
24
19
18
19
The ombud office should be
financed by the insurers, provided
its independence is guaranteed.
All three consumer groups strongly trend towards financing by the
insurance industry, provided the independence of the ombud office
is guaranteed.
124
Implications
7
and
recommendations for action
7
7 Implications and r ecommendations for action
–– As has been shown in the previous chapters, there is little interest in
insurance matters. Consumers also tend to be comparatively illiterate in such
matters. Consumers’ needs for protection, however, are quite diverse.
–– In our analysis and recommendation of potential actions, we shall focus
on three main areas: striking a balance between autonomy and regulation,
consumer information and insurance literacy.
In this part, we collate the results from chapters 4 to 6 into three focus
areas in order to analyse their implications. To do so, we shall use the
theoretical background provided in chapter 2 to reflect on the empirical
results shown in chapters 4 to 6.
As chapter 4 has shown, consumers exhibit a certain disinterest in
insurance matters. While their interest in general financial matters
and their financial literacy are more or less on par with their European
counterparts, Swiss consumers are quite ignorant in insurance matters
(see especially chapter 6). This is not a radically new insight, but rather
a confirmation of the results from previous studies (as has been shown
for Switzerland by Ackermann [2015] and for the US by Cude [2005]).
Compared to the consumer protection requirements shown in chapter
2.1.4, these results clearly confirm the need for action. In its G20
high-level principles on financial consumer protection, the OECD,
for example, strongly underlines the need for appropriate measures
to increase financial literacy – after all, correct decisions can only be
made by well-informed consumers. For us, one potential implication
therefore points towards further investment in educating consumers.
Insurance literacy needs to be boosted.
Consumers are not overly much
interested in insurance matters.
Their knowledge gaps can be
quite considerable.
In order to make informed decisions, consumers should have
a certain degree of insurance
literacy.
Chapter 5 illustrates the wide diversity of protection needs among
insurance customers. They can be grouped into three consumer types
whose insurance literacy, interest in insurance matters and vulnerability
differ widely. A potential conclusion to be drawn from this analysis
might be that “one-size-fits-all” protection measures have only limited
value. Either, they would short-change certain consumer groups (in the
case of low-level consumer protection) or be unnecessarily cost-intensive (in the case of extensive consumer protection). In our view, a more
differentiated approach is needed. Minimum standards and optional
extensions of consumer protection measures might be an alternative
to bureaucratic processes and individual levels of protection. We shall
discuss these minimum standards and their potential extensions in
more detail below.
Consumers’ needs for protection vary across a wide range.
Conceivably, minimum standards
and optional extensions of
consumer protection measures
could be introduced.
The current regulatory measures do not enjoy unanimous
consumer support. Moreover,
they only partially meet consumer’s needs for protection.
In chapter 6, we analysed five specific actions to protect consumers that
are currently being debated on a political level. Consumers surveyed
are in favour of a right of cancellation. In this context however, they
tend to prefer self-regulation by the market to public regulation. The
same goes for the right of termination – consumers tend to think that
regulation should be left to the market. They might voluntarily opt
for longer-term contracts if their premium burden were to be reduced
in exchange. Ordinary termination rights after one year at the end
of the first year would render this option unviable.45 Background on
pre-contractual information is only a minor part of the customers’
information needs. Any pre-contractual information should not focus
exclusively on insurance benefits, but also list potential grounds for
exclusion from coverage. Consumers also have a need to be informed
about contract termination. Furthermore, they set great store by knowledge about complaints mechanisms and about the criteria used to set
their premiums. Astonishingly, they exhibit only a limited interest in
the commissions perceived by advisers and in data protection issues.
Investment risks and means of withdrawal play a particularly important
role in life insurance. Discussing pre-contractual disclosure requirements has shown that causal links (between non-disclosed matters and
a related insured event that has materialised) are a matter of misinterpretation for many a consumer. Consumers need to be educated as to
the reasons why they are obliged to pass sensitive information on to
their insurance providers. Finally, most consumers do not know about
the existence of an ombud office or its role in insurance matters. To
a large extent, they favour the insurance industry’s financing such an
office, provided its independence remain intact. Our results illustrate a
general need of further education both on consumer rights (e.g. ombud
office) and on their obligations (e.g. disclosure obligations).
Table 9 gives a systematic overview of our top ten empirical insights.
45 However, advisers perceive commissions and therefore might be incited to push customers towards longer-term contracts. For this reasons, it might be advisable to examine the
commissions systems and the incentives it offers.
128
Table 9: Top Ten empirical insights
Interest / involvement
67% of consumers say they do extensive research when modifying existing or concluding
new, insurance policies. Otherwise, interest is scarce.
Financial literacy and insurance literacy
32% of those surveyed are unable to answer basic questions relating to interest rate
calculations, inflation, purchasing power and the time value of money. A mere 24% of the
consumers surveyed say that they know an ombud office for insurance matters. It is the
duty of the official authorities and/or the insurance industry to educate consumers more
thoroughly on these questions. 81% of those surveyed are in favour of the insurance
industry’s financing the ombud office. Action therefore is required not so much as to
the ombud model per se but rather as to the awareness level among the consumers.
Information gathering / consultation
77% of the consumers surveyed take out insurance offline, 23% of them prefer to take
out insurance online. 61% of those surveyed want to seek professional insurance advice
in the next five years. These results indicate that advisers provide indispensable support
in structuring information and establishing comparisons.The sometimes quite pronounced
consumer dependency on advisers also indicates that investments with a view to ensuring
quality advice both from tied insurance agents and brokers may create added value for
consumers.
Perception of the relationship / fairness
50% of respondents assess the relationship as relatively fair, 31% are indifferent and 19%
are inclined to classify the relationship as unfair. 14% of consumers have a general disdain
for customer advisers either because they do not trust them or they find contact with
them unpleasant.
Decision-making
79% of those surveyed do not want to leave decisions to their insurance adviser. A
majority of consumers (77%) feels capable of making autonomous insurance decisions.
However, 41% of this group are not financially literate enough to justify their decisions
on a well-informed basis.
Regulation
Currently, there are no pressing wishes to increase insurance regulation.The corresponding
question has been answered in the affirmative by some 47% of those surveyed, but only
half of this group would also be willing to bear the cost of such increased regulation.
Typology
Three consumer groups: Delegators (23%), pragmatists (41%) and autonomous decision-makers (36%) are the labels applying to basic behavioural tendencies in the Swiss
population. Figure 25 shows the distinctive features of each consumer type.
Right of cancellation
61% of those surveyed expressed themselves in favour of a right of cancellation. Only
some 16% can see no benefits in such a right. 49% of consumers are in favour of a right
of cancellation and even willing to bear its associated costs. Potential costs associated with
such a right have next to no influence on consumer preferences. Only 7% of those surveyed cite costs as a reason to renounce the right of cancellation.Thus, it can be assumed
that a right of cancellation is beneficial to consumers.
Right of termination
An ordinary termination right after one year would be perceived by consumers as a
restriction of market forces. 78% of consumers prefer longer-term contracts, provided
that they offer cost savings. 78% of those surveyed react positively to the option of
increasing the contract duration and receiving a premium discount. A discount of 10% is
already deemed attractive.
Pre-contractual information
Most customers set store by information about insurance benefits and exclusions from
coverage. All three consumer groups concur as to the most important contents of
pre-contractual information (Top Five in household insurance: benefits, exclusions from
coverage, criteria for setting premiums, notice periods, complaints mechanisms. Top five
in life insurance: benefits, exclusions from coverage, investment risks, withdrawal from the
contract, notice periods).
We collate our results into three
focus areas in order to analyse
their implications: autonomy
versus regulation, focusing consumer information and ensuring
insurance literacy.
In general, we think that consumers should be protected in the areas
where they are vulnerable. In this study, we have broken down the
consumers surveyed into various consumer groups (see chapter 5).
There groups exhibit various types and degrees of vulnerability (see
part 4). The key question in the context of consumer protection is
whether regulation should be intended to protect all consumers to the
maximum possible extent or whether we can presume a certain degree
of autonomy, and if so, how much? We collate our results into three
focus areas in order to analyse their implications:
– Focus area 1 – Striking a balance between autonomy and regulation: The customers expressed themselves in favour of striking a
balance between autonomy and more extensive regulation: Further
regulation is not necessarily wished for as the discussion of termination rights has shown. Moreover, consumer protection is not
limited to statutory measures per se. Self-regulation and voluntary
commitments by the industry may also be suitable tools. It should
also be clear to all concerned that consumer groups vary widely in
terms of their need for protection.
– Focus area 2 – Less is more in customer information: Economic
theories emphasise that the current extent of insurance information
causes a so-called “information overload”. This is borne out in practice, too. Therefore, we refrain from pleading for more information.
Instead, information should be focused on the essentials. Providing
key information in a standardised format (such as a “package leaflet”
(product profile, KID) worded in a way that is easy to understand)
is preferable to proliferating documentation and information requirements.
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– Focus area 3 – Boosting insurance literacy and customer knowledge: Increasing financial and insurance literacy is a, if not the key
challenge in consumer protection. For instance, every employee
should be able to read and understand his/her pension fund statement. Boosting insurance literacy is an effective way of reducing
the information gap between insurance customers and insurance
providers. However, insurance providers should take steps to reduce
information asymmetry within their own ranks, too. They have to
transcend their current, mainly product-oriented, approach and
move towards increased customer orientation, a better understanding of customer needs and a general emphasis on service rather than
products.
7.1 Personal responsibility versus regulation – striking a
balance
–– The customers surveyed expressed themselves in favour of striking a balance
between autonomy and more extensive regulation,
–– Further regulation is not necessarily being wished for.
–– This has been shown in our discussion of termination rights.
–– Consumer protection is not necessarily limited to statutory measures.
Self-regulation and voluntary commitments by the industry may also be
suitable tools.
–– Consumers’ needs for protection vary. Their differences could be addressed
by defining minimum standards: Such standards could be set for issues on
which the customers agree (e.g. the right of cancellation). In all other cases
(e.g. termination rights and options), matters would be left to autonomous
decision.
The dichotomy between the right to autonomy and regulation is at the
root of every, now classical, dispute between the advocates for liberalism
and those in favour of a state-run economy. The former say that the
state should intervene as little as possible (“laissez-faire economy”). The
latter want the state to run the markets and thus provide incentives for
better decisions. Organising the insurance market, however, cannot
be left to the liberalists or, for that matter, their opponents alone: the
information asymmetries in this market are significant enough to need
some state intervention. The key issue in this context concerns the optimum extent of state intervention. How much protection do consumers
want? What is the correct balance between autonomy and regulation?
The dichotomy between
the right to autonomy and
regulation is at the root of every
dispute between the advocates
for liberalism and those in favour
of a state-run economy.
The latter issue has been addressed in this study while discussing cancellation rights and/or termination options. The findings are quite clear, as
most of the consumers surveyed realise that limitations of the freedom
to choose may also work out in their favour, e.g. in the form of premium reductions. In this context, most of the consumers surveyed prefer
not to be subjected to a regulatory straight-jacket but to make their
Cancellation and termination
rights are cases in point where
striking a balance between autonomy and regulation matters.
own, autonomous, decisions. A large group of consumers would perceive an ordinary termination right kicking in after the first year of the
contract as an undesirable restriction. Just one fifth of the population
favours a basic term of one year or less. The remainder would prefer a
flexible approach with more advantageous pricing models over time.
These findings clearly illustrate that different consumers have different
protection needs. Some consumer groups opine that they want to
make autonomous decisions and therefore need complete freedom of
choice and as little state intervention as possible. This holds true for
the autonomous decision-makers introduced in chapter 5. Some other
customer groups, such as delegators, are more vulnerable and therefore
need more protection.
The need for protection
varies among consumer groups.
Consumer protection can be
designed in three possible
ways: by providing extensive
protection for all consumers, by
providing minimal protection or
by setting minimum standards
with additional options.
As the typology clearly illustrates, vulnerability risks and protection
needs vary from consumer group to consumer group. What follows
from these findings? Basically, consumer protection could focus on
either consumer group:
– E.g. by providing maximum protection for the most vulnerable
group and therefore for all consumers. However, this would be equal
to providing protection for a large part of the population that does
not need it and, consequently, resents paying for it. Moreover, this
would be a very expensive option which might push some products
currently on offer out of the market.
– Alternatively, basic consumer protection could be set at a very low
level with the definition left to the market forces. This option is not
without risks, either: protection supply and demand might mean
that certain customers would not be able to get the protection they
need.
– A third way between those extremes would consist in setting some
minimum standards for consumer protection (by law or in the form
of voluntary commitments and self-regulation) and providing for
additional optional protection. Such standards make especial sense
for issues on which there is agreement among all consumers.46 As
this is not always the case, additional protection should be optional.47 We would like to point out, however, that minimum standards
should not aligned to certain consumer groups, but rather depend
46 As an example, most customers are in favour of a right of cancellation. They also would
like to see the introduction of pre-contractual information requirements and even tend to
prioritise the same topics (Top Five). In addition, a vast majority of consumers are looking
for information that is easy to understand.
47 As an example, 80% of the customers surveyed are against an ordinary termination right
kicking in after the first year of the contract. They would be willing to give up this right if,
in exchange, they were to benefit from premium reductions. 20% of the population could
be offered contracts featuring ordinary termination rights, but freedom of choice should
prevail.
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on customer consensus and/or dissent, i.e. on the common denominator of all consumer groups.
The general idea would be to set minimum standards for consumer
protection and either anchor them in law or in the insurance industry itself by voluntary commitment. These standards would apply to
issues on which all customer groups agree, such as cancellation rights
or pre-contractual information requirements. Other issues do not
elicit unanimous customer reactions. Here, freedom of choice could
be granted while addressing customers’ needs of protection with individual, tailor-made offers. The right of early termination or specific,
voluntary information and assistance (e.g. a “digital coach”) could be
integrated into such offers. Instead of regulating these fields, protection
needs would be met by such complementary offers without general
provisions being set for multiple customers. This third-way approach
would permit to attend to each customer’s needs in an efficient manner
while preserving a reasonable cost-benefit ratio.
Minimum standards combined
with freedom of choice make
for consumer protection that is
aligned to the various groups.
In this context, it is important to decide whether consumer protection
should be left exclusively to the state or whether the insurance industry might contribute by way of self-regulation. Consumer protection
should be understood as entailing more than a mere regulatory framework. It is perhaps a truism that insurers, too, are able to implement
consumer protection measures. The advantage of this approach is that
it could enable insurers to make a name for themselves in the market
through their consumer protection initiatives (e.g. to strengthen their
image). To protect their own interests, they would also strive to maintain an adequate balance between costs and benefits, thus furthering
efficiency. This approach should also be of interest to the consumers as
our empirical findings show very clearly that they are quite reluctant
to pay for extended protection. And in the end, working in a competitive market means that every additional measure has to be financed
by increasing premiums, i.e. passing the costs on to the customers.
Industry self-regulation therefore could be the key to more efficient
consumer protection, as the insurance providers would by motivated
by self-interest to choose measures with a positive cost-benefit ratio.
Statutory consumer protection measures carry a (theoretical) risk of
unsettling this balance and failing to meet the interests of both the
insurance providers and their customers.
Self-regulation constitutes a
potentially efficient complement.
However, this means that the
insurance providers have to
be willing to use consumer
protection offers as a means to
set themselves apart from the
competition.
Our findings on the ombud system are quite remarkable in this context.
The majority of the persons surveyed want the insurers rather than the
state to offer ombud services, as long as they are being provided by an
independent institution. Switzerland is not the only country whose
ombud system consists in an independent private institution. We know
from experience in Switzerland and other countries that such a system
The ombud system should be
maintained in its current form.
The problem lies not so much in
the scope of ombud activities,
but rather in a lack of awareness
among the consumers.
is an effective and efficient means of protecting insurance consumers.48
This statement is not to exclude further development of the current
ombud system. Recently, the advantages of the so-called “Online
Dispute Resolution” have widely been promulgated in this context.
Further self-regulatory measures
will need examination by the
insurance industry.
The question arises whether there are issues the industry might address
outside its self-regulatory framework in order to assist customers in
their decision-making processes. Making key data such as company
or solvency ratings in accordance with Solvency II/the Swiss Solvency
Test (SST) available in a transparent and centralised manner might be
one such measure. However, its advantages and disadvantages need to
be assessed carefully. The so-called solvency ratio, i.e. the ratio of the
capital available to the capital necessary, might furnish valuable information about the soundness of a given company. However, a procedure
would have to be in place to ensure that all data published is effectively
comparable, so as not to induce market participants into erroneous
conclusions. For example, there is quite some reason for doubt whether
SST solvency data (calculated either according to standardised models
or with the help of internal models) meet the comparability criterion.
As a further means of voluntary disclosure, a standardised mandatory
“package leaflet” (product profile) such as the Key Investor Information
Document (KIID) in the financial industry could be used to illustrate
the main characteristics of each product. Offering digital coaching via
the appropriate technology might take the form of an industry-wide
voluntary initiative.
7.2 Information for customers – less is more
–– There is room for improvement as far as customer information is concerned.
Increasing the information quantity will not do, however. Rather, information
should be cut down to a manageable format.
–– Information should be worded in a way that consumers will understand and
presented in a way that enables comparison.
Information overload is
imminent.
Excessive information requirements would tend to confuse customers
and prevent them from making better decisions. The question therefore
arises whether information should be pruned down to the essentials
instead. Economists refer to the dangers of “information overload” and
“bounded rationality” (see chapter 2.3). People caught up in complex
decision-making processes are unable to process all the information at
48 Tennyson (2010), for example, compares the organisation of appeals systems in the US
and in Canada; Schwarz (2008) looks at the situation in the UK and the US. See also
Abichandani (2007) as to India, Hirsch and Schoser (2010) as to Germany or Merricks
(2007) as to the UK.
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their disposal and respond by applying simplification strategies (heuristics). Table 10 lists the information requirements when contracting
insurance – and gives an impressive example of potential information
overload. Altogether, nine areas of information need to be covered in
insurance consultancy before, during and after concluding a contract.
Table 10: Information overload in insurance
(Germany; after Wittrock, [2015])
What
When
Brochures, bulletins on special issues, basic information before consultation
Product profile
during consultation
Consumer status/outcome
during/after consultation
Insurance proposal/offer
after consultation
Minutes
after consultation
Copy of the application
before conclusion
Terms and conditions
before conclusion
Product profile
before conclusion
Insurance information
after conclusion
Information should not only be manageable as to its volume, in order
to facilitate the decision-making process. Data also need to be comparable. More comparable data would lead to an increase in market
transparency, thereby contributing to the functioning of the insurance
market. Basically, market discipline should be strengthened: Market
discipline means that, in a transparent insurance market, customers,
investors and rating agencies have a disciplining effect on the management of insurance companies. Any error or malpractice on the management’s part or any increase in risk exposure will be quickly discovered
and trigger a response from investors and customers, e.g. a drop in the
share price or downward pressure on premiums. Consumer backlash
potential may have a disciplinary effect on management behaviour.
Comparison issues constitute
the main problem.
Market discipline aims to ensure that certain signals exert their influence on management behaviour. This begs the question whether market
discipline is an efficient tool for protecting insurance consumers. To a
large extent, the answer depends on the market’s effectively monitoring
such signals. Corresponding analyses have been carried out both for
the US and the German insurance market (see Epermanis & Harrington, 2006; Eling & Schmit, 2013). In both cases, indications of
An extension of market
discipline might be an option to
protect consumers in an effective and efficient manner.
market discipline have been found.49 Insofar as consumer protection is
concerned, increasing market discipline might be an option. However,
our empirical findings on insurance literacy and consumer interest in
insurance matters are enough to raise a certain scepticism. Therefore,
any attempt to increase market discipline should be accompanied by
measures to boost insurance literacy (focus area 2).
More market discipline make for
a better reputation and more
efficient sanctions in case of
malpractice.
More market discipline might prove beneficial to the insurance industry, too, if it continues to work on its reputation, for example by
efficiently and rapidly sanctioning management malpractice. Consumer
trust and a reputation for integrity are, after all, two of the insurance
industry’s main assets. Additional information requirements contribute to the market participants’ understanding of the quality and risk
situation of a given insurance provider. Better information also tends
to reduce so-called agency conflicts, i.e. information asymmetries between insiders (management) and outsiders (analysts, shareholders, and
policyholders), thereby eliminating uncertainties. In the end, even the
regulators stand to profit, as data will be supplied sooner and in a more
reliable format, thereby making it easier to work in a timely fashion
without deploying undue resources.
We recommend reviewing existing information requirements
with a view towards simplification and standardisation.
We therefore recommend reviewing existing regulations and provisions with a view to simplification and standardisation. Transparency
should be increased, in particular by simplifying and standardising
information. Voluntary commitments by the insurance industry are
once again a potential approach towards this goal. Explanatory calculations for fund-linked units as demonstrated in art. 8 of the FINMA
circular 2008/40 (life insurance) are a case in point. Moreover, all data
published should be comparable. If these requirements are met, market discipline can develop into an extremely useful and efficient tool,
especially if it makes certain statutory measures redundant and/or if the
state does not need to require any further data, because all significant
data has already been published.50
49 In the German insurance market, any given insurance provider’s premium volume shrinks
(as compared to the market average) after its rating has been downgraded, whereas
a rating upgrade has no discernible effects. These findings correspond to the results of
similar empirical research in the US insurance market. Therefore, the risk of loss in case of
a downgrade is significantly higher that the potential gain in case of an upgrade. An asymmetrical risk distribution such as this constitutes a potential incentive to conduct business
in a sustainable manner as one single bad year may destroy all that has been achieved during many a good year. These effects are particularly striking in corporate lines of business,
but can also be observed in retail lines (see Epermanis & Harrington, 2006; Eling & Schmit,
2013).
50 An increase in market transparency may work as a substitute for regulatory needs – given
a certain degree of market transparency, other regulatory interventions may be cut back
(see Bernet, 2005).
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Interestingly, all three consumer groups (delegators, pragmatists and
autonomous decision-makers) prioritise the same pre-contractual information requirements. A significant finding, as it may have some bearing
on the design of future key information documents (KID). In our view,
it would also be appropriate to publish an overview of customer rights
(e.g. within the ombud system) and obligations (e.g. pre-contractual
disclosure obligation) in the form of a leaflet. Our empirical findings
show significant knowledge deficits in both areas, which means that
consumer literacy should be increased.
Key information documents
(KID) can play an important role
in the decision-making process,
provided they contain the
desired information in as slim as
possible a format.
A general purge of all information documents from overmuch information might also be helpful. This is already beginning to happen:
The German Insurance Association (GDV) has started an initiative to
amend its model terms and conditions with a view to making them
clearer and easier to understand. This has led to Ergo’s General Terms
and Conditions for household insurance getting cut down from its
formerly 40 pages to its current 12-page version (see Wittrock, 2015).
This means that German insurance contracts nowadays do without
virtually any legalese at all.
Purging customer information
from minor details and viewing
them from the customer’s
perspective may work as an
antidote to the “information
overload”.
7.3 A need for greater insurance literacy and more detailed
customer knowledge
–– Increasing financial and insurance literacy is a, if not the, key challenge in
consumer protection. For instance, every employee should be able to read
and understand his/her pension fund statement.
–– Insurance provides are also called upon to learn more about their customers
and concentrate on understanding their needs instead of trying to push
product.
Alongside politically debated measures we also found that consumer
education and support is lacking in various decision-making phases,
the problem being that the safety/security issues often are not viewed
from a customer standpoint yet. Brochures, for example, still limit
themselves to enumerating various benefits instead of illustrating potential consumer needs and scenarios. In our opinion, this is the most
important lever, comprising the following approaches:
– Educating customers on their essential everyday risks
– Educating customers on the workings of an insurance provider and
on the assistance it can provide for customers in daily life
– Educating customers on the complaints mechanisms in insurance
– A digital coach for insurance matters that accompanies customers
throughout their customer journey with a particular emphasis on
the decision-making phase. Such a coach would be designed to
There is room for improvement
in consumer education and
support in the decision-making
phase.
enable customers to express their need precisely, to find adequate
coverage and to reflect on the information gathered from advisers.51
When drafting consumer protection measures, we must take
account of the fact that about
one-third of the population lacks
basic financial literacy.
In this context, it should be noted that the distribution of financial
literacy in Switzerland is quite heterogeneous – despite the population’s
comparatively high average financial literacy rate. When drafting consumer protection measures, we therefore must take account of the fact
that about one third of the population lacks basic financial literacy.
This is especially true for the delegator group, i.e. for those 23% of the
population that are to a large extent financially illiterate and prone to
extensive delegation. 80% of the delegators surveyed are financially
illiterate.
There is a marked lack of
financial literacy, not only
because consumers refuse to get
involved, but also because their
insurance providers lack the will
to educate them.
The differences in insurance literacy are also striking: There is next
to no awareness of the ombud system and hardly any of the persons
surveyed distinguish correctly between insurance agents and insurance
brokers. Most consumers also fail to understand causal links between
non-disclosure and a materialised insured event. A lack of insurance
literacy has also been found in other comparative studies. Ackermann
(2015) has shown that only 50% of the Swiss working population
are aware of the extent of their old-age benefits. This lack of literacy
contrasts strongly with the enormous economic weight of these issues.
Every consumer should know
how to read his/her pension
fund statement.
Every employee should be able to read and understand his/her pension
fund statement. It is doubtful whether this is currently the case. Boosting insurance literacy is an effective way of reducing the information
gap between insurance customers and insurance providers. Consumers
need to be enabled to understand their risks, to familiarise themselves
with various providers and evaluate their offers, to consider information
from third parties, to conclude contracts, to register changes to their
risk situation, to react appropriately when making an insurance claim
and to defend their rights.
Campaigns to boost financial
literacy make sense – especially
for younger people still in training or education.
Education campaigns conducted by the insurance industry might be
a suitable tool to boost financial literacy. Certain acceptance problems
cannot be excluded, however, due to the perceived self-interest of the
industry. The insurance industry might also try and exert its influence
on the political level, getting the state to assume more responsibility
for ensuring insurance literacy. Raising awareness of insurance issues
is something that can be done at school already. As has been shown
in part 5, financial literacy is acquired rather late in Switzerland. This
means that there is a significant potential for learning among the
younger generations which has not been tapped yet. Schools could
easily be entrusted with doing so and boosting insurance literacy at
51 A digital insurance coach could be offered by the Swiss Insurance Association or an independent institution in the form of a neutral online consultancy tool.
138
earlier ages. Corresponding programmes on financial topics and debt
risks exist, but they either neglect to include insurance matters or do so
at a very elementary level. Programmes such as “Fit for Finance” (www.
fitforfinance.ch) can serve as an example, provided they go into the
dimension of insurance. EU initiatives such as its training programme
for schoolchildren (Europa Diary), training sessions for consumer
protection authorities aimed at empowering consumers (TRACE),
courses for master’s students, and online consumer education platforms
(DOLCETA) (Goldsmith & Piscopo, 2013) could also be examined
with a view to offering insurance-specific applications. Some recent
initiatives seem to go into the right direction: The new national curriculum for Switzerland (“Lehrplan 21”) lists insurance literacy among
the necessary competencies. A strategic focus that should be reinforced.
Improving financial and insurance literacy also figures among the
OECD’s and the World Bank’s catalogues of consumer protection requirements. In our opinion, however, financial education and financial
literacy are not taken seriously enough in the current debates about
consumer protection in Switzerland. Said debates focus strongly on
insurance distribution, but less so on the consumers themselves, their
characteristics and their knowledge. In this context, it should also
be noted that the Swiss regulator (FINMA) has explicitly not been
mandated to carry out financial education measures – although such
mandates exist in other countries. We are not calling for an extension
of the FINMA’s mandate, but the fact that it excludes the education
dimension is tangible evidence of a certain lag which will need to be
compensated in order to meet the OECD’s and the World Bank’s
requirements.
However, financial education
and financial literacy are not
taken seriously enough in the
current debates about consumer
protection in Switzerland.
Calling for an increase in insurance literacy, however, does not mean
that the customer is solely responsible for the above-mentioned lag. We
do not want to give the impression that it is all a matter of the consumer’s increasing his/her knowledge. On the contrary, insurance providers
are also called upon to improve their awareness and knowledge of the
requirements of their customers. Increased insurance literacy on the
one hand, increased customer knowledge on the other will create synergies that contribute to a better alignment of customer requirements
and insurance products. The targeted, reader-specific design of key
information documents is also part of the insurance providers’ main
duties (e.g. as regards rights and obligations). Moreover, enhancing
insurance literacy is also a central task for the Swiss government, i.e.
the administration.
Boosting consumer literacy is
one of the main tasks of the
Swiss insurance industry. Action
is required, especially as to providing appropriate information
for customers via every available
channel.
7.4 Recommendations for action
–– Consumer protection in insurance should focus on strict solvency requirements (right to safety/security) and enhanced customer information (right to
be (fully) informed).
–– Action is required as to customer information and increasing insurance
literacy among consumers.
–– When implementing additional initiatives, the right to choose is to be taken
into account, i.e. consumer protection should not reduce or block product
supply. Voluntary initiatives (self-regulation) are therefore to be preferred
over statutory regulation.
Switzerland is doing quite well
as regards the JFK Consumer Bill
of Rights. Nevertheless, there is
significant room for improvement.
In order to derive our recommendations for action we are going to
draw back to the JFK consumer bill of rights in the first part of our
study. The four basic consumer right are: the right to safety/security,
the right to be informed, the right to be heard and the right to choose.
Where does the Swiss insurance industry stand when it comes to these
four basic rights?
–The right to safety/security is provided for by means of strict,
internationally recognised solvency regulations (as embodied in the
Swiss Solvency Test). These measures are supplemented by safety
mechanisms, such as the guarantee funds, e.g. within the UVG or
the BVG regulations, or mechanisms such as the insurance pools
for natural perils, pharmaceutical or nuclear risks.
–The right to be (fully) informed is the subject of current reform
projects, such as the revision of the Insurance Contracts Act
(VVG) and the drafting of the Financial Services Act (FIDLEG).
In this context, it is important to remember that it is not more information that is needed, but rather easy-to-understand information
in formats that lend themselves to comparison.
–The right to be heard is covered in particular by the ombud system.
In Switzerland, the latter is organized in line with international
standards and qualifies as effective and efficient. Moreover, complaints can be lodged with the regulator. There is no evident need
for action inasmuch the right to be heard is concerned. The product
profile (KID) might include a reference to the ombud office in order
to raise awareness of this institution.
– Again and again in the study, the right to choose has been called
into question. Measures taken to protect consumers generate costs,
which have to be borne by the owners of the insurance companies
and by the consumers themselves. Consequently, insurance coverage
may lessen, if customers are no longer willing to pay ever higher
premiums or if the company owners refuse to provide additional
140
capital.52 The present study confirms the significance of the right to
choose (as shown by the our findings on termination options and
on the willingness to bear the costs of additional regulation).
What should consumer protection in insurance look like? Most
scientific literature agrees that stringent solvency requirements and
easy-to-understand, comparable data are the most valuable contribution to customer protection. For this reason, the FINMA strategy must
be welcomed, consisting, as it does, of relatively stringent solvency
regulations combined with comparatively minor restrictions as to
products. This approach is consistent with scientific findings on the
effective ness of regulation: From an economic viewpoint, solvency
supervision can easily be justified, whereas other requirements as to
pricing and products often are considered inadequate and of little use
(see also our detailed discussion in chapter 2.3).
In insurance, consumer protection should focus on stringent
solvency requirements and
enhanced customer information.
We therefore are of the opinion that action is mostly needed in order to
provide enhanced, targeted customer information. The corresponding
measures, i.e. providing customers with plain, easily comparable information, constitute the most important lever to improve the status quo.
The insurance industry should continue to take proactive initiatives
in the field of consumer protection, regardless of the political debate.
In this way, the industry will be able to channel early-stage political
discussion towards key areas that make good economic sense and
strike a viable balance between the interests of company owners and
consumers. In this way the industry will send out a positive political
signal (“the industry is proactive”).
For insurance providers, proactive measures are a means of
enhancing their profile.
There already are examples of initiatives used by the insurance industry to strengthen consumer protection in its field. Keywords in this
context are training requirements and quality of advice, both of which
are already extensively regulated within the EU (testing professional
qualifications, compulsory registration, compulsory insurance, mandatory records of consultations). The Swiss insurance industry has chosen
not to await statutory regulation in these fields, but to roll out its own
training certification system (CICERO) offering regular professional
training to both tied insurance agents and brokers in order to ensure
their adherence to quality standards and their commitment to lifelong
learning. The Swiss Insurance Brokers Association SIBA has introduced
a code of conduct for distributors adhered to by all its members.53
There already are examples of
initiatives such as CICERO used
by the insurance industry to
strengthen consumer protection
in its field.
52 The current discussion about the “legal quote” in occupational pensions and the correlated business withdrawal threats by the life insurers are a case in point. See also Schmeiser
(2015).
53 It should be noted that not all registered brokers are members of the SIBA.
Meanwhile, there is also a need
for greater transparency and
increased disclosure – in an
easy-to-understand, standardised format.
Further transparency and disclosure requirements are to be expected
in that aftermath of the financial crisis. Proactive measures might be
advisable for the industry in this case, too. The current debate concentrates on the disclosure of ties, remuneration and fundamental product
characteristics. In our view, the EU PRIIPs Directive and its basic
information sheet (a KID for investment products) are setting an interesting precedent. Experience gained from the implementation of the
PRIIPs Directive could be used to draft similar information sheets for
Switzerland. This is another case in point: a voluntary commitment by
the industry to use standardised information sheets (product profiles)
might take the place of statutory disclosure regulation. In the wake
of the financial crisis, the reorganisation or implementation of new,
complaint or appeal bodies run by the state has also been discussed. The
insurance industry should make efforts for the current ombud system
to continue its work.
Boosting insurance literacy
in Switzerland should be an
essential element of consumer
protection.
In addition to providing more adequate information, there is a need for
action with regard to education and training. Once again, the question
arises whether the knowledge necessary to become insurance-literate
should be imparted by the state or by private insurance institutions.
Both approaches might also be combined in a joint effort, for example
in developing digital insurance coaching technology. Furthermore,
Swiss policymakers are in a position to ensure that (basic) insurance
concepts are taught in school already (such as: What are my main risks
in daily life? How can they be covered by insurance? How are old-age
provisions set up and what does my pension fund statement tell me?)
Figure 42 provides an overview of the various recommendations for
action, structured according to the JFK consumer bill of rights. While
we do not think that action is required as far as the right to safety/
security and the right to be heard are concerned, there is still room for
improvement as to the right to be (fully) informed – a call to which the
insurance industry should pay heed. When implementing additional
initiatives, the right to choose is to be taken into account, i.e. consumer
protection should not reduce or block product supply. As shown above,
voluntary commitments by the insurance industry are preferable to
statutory regulation, not least in the interest of the consumers. In order
to do justice to the right to choose, each measure should be assessed ex
ante as well as ex post as to its costs and benefits. Recommendations for
action are not to be limited to the sole insurance industry, but can also
be interpreted as an appeal to other stakeholders (especially politicians,
members of the administration, consumers and consumer associations).
142
Fig. 42: Recommendations for action – structured in accordance with the JFK
consumer bill of rights
Recommendations for action
– Right to safety/security: The insurance industry should raise awareness
of the Swiss Solvency Test and the extensive level of protection it affords as
well as further safety mechanisms. Both in international terms, and compared
with other industries, Swiss consumers are very well protected. No additional
action is called for.
– Right to be (fully) informed: There is room for further industry measures
to enhance customer information. In this context, quality in the sense of easy-to-understand data that lend themselves to comparison is to be preferred
to mere quantity. Streamlining the wording of insurance terms and conditions
and introducing digital insurance coaching are but two examples. Moreover,
the insurance industry and the administration should join forces to boost the
population’s financial and insurance literacy.
– Right to be heard: The insurance industry is called upon to safeguard the
current ombud system. It is organised in line with international standards; its
effectiveness and efficiency have been proven. No additional action is called
for. However, product profiles (KID) should make mention of the ombud
offices in order to raise consumer awareness of their rights.
– Right to choose: In the interest of both company owners and consumers, the
insurance industry should also explain the downside of (excessive) consumer
protection. Increased protection entails higher costs which either lead to
premium hikes or to cuts in insurance coverage. These aspects should be
taken into account when implementing further measures. The findings of this
study (e.g. as to termination options) underscore the significance of the right
to choose.
Appendices
Appendices
Appendix A: World Bank classification of financial
consumer protection
Table 11: Classification and requirements of consumer protection
in insurance (Lester, 2009; World Bank, 2012)
1.
Consumer Protection Institutions – Consumer Protection Regime, Contracts,
Code of Conduct for Insurers, Other Institutional Arrangements, Bundling and
Tying Clauses
2.
Disclosure and Sales Practices – Sales Practices, Advertising and Sales
Materials, Understanding Customers’ Needs, Cooling-off Period, Key Facts Statement, Professional Competence, Regulatory Status Disclosure, Disclosure
of Financial Situation
3.
Customer Account Handling and Maintenance – Customer Account Handling
4.
Privacy and Data Protection – Confidentiality and Security of Customers’
Information
5.
Dispute Resolution Mechanisms – Internal Dispute Settlement, Formal Dispute
Settlement Mechanisms
6.
Guarantee Schemes and Insolvency – Guarantee Schemes and Insolvency
7.
Consumer Empowerment & Financial Literacy – Broadly based Financial
Literacy Program, Unbiased Information for Consumers, Measuring the Impact of
Financial Literacy Initiatives
Appendices
Appendix B: IAIS Core Principles 2003
(incl. Preconditions for Effective Insurance Supervision) update
Table 12: IAIS Core Principles 2003 (incl. Preconditions for Effective Insurance Supervision) update
#
Criterion
Explanation
1
Conditions for
effective insurance
supervision
Insurance supervision relies upon
–– a policy, institutional and legal framework for financial sector supervision
–– a well-developed and effective financial market infrastructure efficient
–– financial markets.
2
Supervisory objectives
The principal objectives of insurance supervision are clearly defined.
3
Supervisory authority
The supervisory authority:
–– has adequate powers, legal protection and financial resources to exercise its functions
and powers
–– is operationally independent and accountable in the exercise of its functions and
powers
–– hires, trains and maintains sufficient staff with high professional standards
–– treats confidential information appropriately.
4
Supervisory process
The supervisory authority conducts its functions in a transparent and accountable manner.
5
Supervisory
cooperation and
information sharing
The supervisory authority cooperates and shares information with other relevant super
visors subject to confidentiality requirements.
6
Licensing
An insurer must be licensed before it can operate within a jurisdiction. The requirements
for licensing are clear, objective and public.
7
Suitability of persons
The significant owners, board members, senior management, auditors and actuaries
of an insurer are fit and proper to fulfill their roles. This requires that they possess the
appropriate integrity, competency, experience and qualifications.
8
Changes in control and
portfolio transfers
–– The supervisory authority approves or rejects proposals to acquire significant ownership or any other interest in an insurer that results in that person, directly or indirectly,
alone or with an associate, exercising control over the insurer.
–– The supervisory authority approves the portfolio transfer or merger of insurance
business.
9
Corporate
governance
The corporate governance framework recognises and protects rights of all interested
parties. The supervisory authority requires compliance with all applicable corporate
governance standards.
10
Internal controls
The supervisory authority requires insurers to have in place internal controls that are
adequate for the nature and scale of the business. The oversight and reporting systems
allow the board and management to monitor and control the operations.
11
Market analysis
Making use of all available sources, the supervisory authority monitors and analyses all
factors that may have an impact on insurers and insurance markets. It draws conclusions
and takes action as appropriate.
12
Reporting to
supervisors
The supervisory authority receives necessary information to conduct effective off-site
monitoring and to evaluate the condition of each insurer as well as the insurance market.
13
On-site inspection
The supervisory authority carries out on-site inspections to examine the business of an
insurer and its compliance with legislation and supervisory requirements.
14
Preventive and
corrective measures
The supervisory authority takes preventive and corrective measures that are timely,
suitable and necessary to achieve the objectives of insurance supervision.
15
Enforcement or
sanction
The supervisory authority enforces corrective action and, where needed, imposes sanctions based on clear and objective criteria that are publicly disclosed.
146
Appendices
Table 12: IAIS Core Principles 2003 (incl. Preconditions for Effective Insurance Supervision) update
#
Criterion
Explanation
16
Winding-up or exit
from the market
The legal and regulatory framework defines a range of options for the orderly exit of
insurers from the marketplace. It defines insolvency and establishes the criteria and
procedure for dealing with insolvency. In the event of winding-up proceedings, the legal
framework gives priority to the protection of policyholders.
17
Group-wide
supervision
The supervisory authority supervises its insurers on a solo and a group-wide basis.
18
Risk assessment and
management
The supervisory authority requires insurers to recognise the range of risks that they face
and to assess and manage them effectively.
19
Insurance activity
Since insurance is a risk taking activity, the supervisory authority requires insurers to
evaluate and manage the risks that they underwrite, in particular through reinsurance, and
to have the tools to establish an adequate level of premiums.
20
Liabilities
The supervisory authority requires insurers to comply with standards for establishing
adequate technical provisions and other liabilities, and making allowance for reinsurance
recoverables. The supervisory authority has both the authority and the ability to assess
the adequacy of the technical provisions and to require that these provisions be increased,
if necessary.
21
Investments
The supervisory authority requires insurers to comply with standards on investment
activities. These standards include requirements on investment policy, asset mix, valuation,
diversification, assetliability matching, and risk management.
22
Derivatives and similar
commitments
The supervisory authority requires insurers to comply with standards on the use of
derivatives and similar commitments. These standards address restrictions in their use
and disclosure requirements, as well as internal controls and monitoring of the related
positions.
23
Capital adequacy and
solvency
The supervisory authority requires insurers to comply with the prescribed solvency
regime. This regime includes capital adequacy requirements and requires suitable forms of
capital that enable the insurer to absorb significant unforeseen losses.
24
Intermediaries
The supervisory authority sets requirements, directly or through the supervision of insurers, for the conduct of intermediaries.
25
Consumer Protection
The supervisory authority sets minimum requirements for insurers and intermediaries in
dealing with consumers in its jurisdiction, including foreign insurers selling products on a
cross-border basis. The requirements include provision of timely, complete and relevant
information to consumers both before a contract is entered into through to the point at
which all obligations under a contract have been satisfied.
26
Information, disclosure
and transparency
towards markets
The supervisory authority requires insurers to disclose relevant information on a timely
basis in order to give stakeholders a clear view of their business activities and financial
position and to facilitate the understanding of the risks to which they are exposed.
27
Fraud
The supervisory authority requires that insurers and intermediaries take the necessary
measures to prevent, detect and remedy insurance fraud.
28
Anti-money-laundering,
combating the financing of terrorism
The supervisory authority requires insurers and intermediaries, at a minimum those
insurers and intermediaries offering life insurance products or other investment related
insurance, to take effective measures to deter, detect and report money laundering and
the financing of terrorism consistent with the Recommendations of the Financial Action
Task Force on Money Laundering (FATF).
Appendices
Appendix C
Table 13: Criteria for successful regulation according to Skipper/Klein (2000)
Criteria
Sub-criteria
1.
Regulation should be
adequate
–– Governments should enact and enforce laws that provide an effective framework
for competitive insurance markets.
–– Governments should enact and enforce laws that establish reasonable solvency
standards and regulation as the primary means of protecting the public.
–– As part of reasonable solvency regulation, governments should establish, make
public, and enforce appropriate and consistent rules and procedures for identifying
and dealing with financially troubled insurers.
–– Governments should establish an insurance regulatory agency that operates in the
national interest and has sufficient resources to efficiently, effectively, and impartially
enforce the nation’s insurance laws and regulations.
–– Governments should develop and implement pro-competitive insurance regulation
in a way and at a pace that ensures adequate protection of the public but that proceeds without undue delay and is subject to a reasonable implementation timetable.
2.
impartial
–– Governments should ensure that regulation and enforcement are applied with
consistency and impartiality between competitors, irrespective of the nationality.
3.
minimally intrusive
–– Insurance regulation should be limited to that which is (1) justified as providing
meaningful protection; and (2) minimally intrusive to accomplish its purpose.
–– Subject only to that regulatory oversight essential to protect the public, governments should allow the market to determine: (1) what financial services products
should be developed and sold; (2) the methods by which they are to be sold; and
(3) the prices at which they will be sold.
–– Governments should ensure that insurance customers have access to information
sufficient to enable them to make informed, independent judgments as to (1) an
insurer’s financial condition; and (2) the benefits and value of its products.
4.
The regulatory process should –– Governments should make existing insurance laws and regulations easily available
be transparent
to the public, including to consumers and businesses and to insurers and other
financial services providers.
–– In crafting proposed insurance laws and regulations, governments should: (1) make
such proposals easily available to the public, including to consumers and businesses
and to insurers and other financial service providers; (2) invite comment on the
proposals; (3) allow sufficient time for interested parties to provide comments; (4)
provide justification for decisions to accept and reject comments; and (5) establish
and communicate a fair process by which decisions considered arbitrary or unjust
can be challenged.
148
Appendices
Appendix D
Table 14: Cross-country comparison: regulations on consumer protection in the finance industry
Germany
Austria
Switzerland
AltZertG
Directive 2002/92/EC (IMD)
VVG
Directive 2009/103/EC
RS 2013/9
FinVermV
InfoV-VU
KfzPflVV
R RVV 2012
KWGVermV
VAG
R 9/2007
VersVG
Current regulation
Insurance brokerage law / distribution /
Product requirements
VersVermV / Directive
2002/92/EC (IMD)
VVG
VVG-InfoV
Solvency requirements
AVO
Directive 2002/87/EC/
FkSolV
RS 2008/33
Directive 73/239/EEC
RS 2008/44
Directive 73/239/EEC
R EfiL 2012
RS 2012/1
KapAusstV
RS 2013/2
R 4/2005
VAG
RückKapV
SolBerV/R 4/2009
Publication obligations to
the general public
PrüfV
FBO
RS 2008/31
RechVersV
EKV
VAG
TransPuG
FK-QUAB-V
VAG
Anti-discrimination
not regulated
R UK 2012
Qualification (fit and proper)
MA Risk VA
VAG
VAG
Directive 94/19/EC
Directive 94/19/EC
AVO
Directive 97/9/EC
Directive 97/9/EC
RS 2008/32
FinStabG
VAG
VAG
FMStFG
FinStaG
VAG
Insolvency / Guarantee fund
IO
Data protection
BDSG
DSG 2000
DSG
Competition regulations
(EU) No 267/2010
(EU) No 267/2010
KG
TFEU
TFEU
UWG
UWG
UWG
2004/39/EC/FRUG (MiFid)
2004/39/EC / FRUG (MiFid)
Directive 2014/65/EU
(MiFid2)
Directive 2014/65/EU
(MiFid2)
Appendices
Table 14: Cross-country comparison: regulations on consumer protection in the finance industry
Germany
Austria
Switzerland
Directive 2012/0175(COD)
(IMD2)
Directive 2012/0175(COD)
(IMD2)
FIDLEG,
VVG revision
COM(2012) 352 final
(PRIIPs)
COM(2012) 352 final
(PRIIPs)
COM(2012) 10 final
(Data Protection)
COM(2012) 10 final (Data
Protection)
COM(2010) 370
COM(2010) 370
Future regulation
Insurance brokerage law /distribution /
Product requirements
Insolvency / Guarantee fund
no plans
Appendix E
Table 15: Focus group “consumer protection”
Topic
Approach / issue
1. Introductions
Short introduction of the participants
1. Who am I (name, profession, …)?
2. The term “consumer protection” suggests …? to me
2. My insurance coverage
1.
2.
3.
4.
Please try to recall your feelings when you last subscribed to an insurance
policy (property insurance, life insurance, health insurance ...)
How confident / insecure did you feel at that particular moment?
Why / reasons for feeling secure / insecure?
What is the basis for my trust in my insurance (provider)?
Where do I feel rather insecure?
How about your trust in the insurance industry? Do you trust it?
What do you base your trust on?
3. Fairness
1. In your opinion, how fairly are customers being treated in insurance?
2.
3.
4.
5.
Please cite instances of fair / unfair treatment in insurance matters.
How do you define fairness in insurance matters?
On what basis do you judge a treatment as being fair/unfair?
As a customer, do you think that your interests are being considered in insurance
matters?
4. Guarantees
1. Imagine being the CEO of an insurance company that presents itself as
“FAIR insurance”.
2. What are the three concrete commitments you would make to your customers?
a. Please describe these guarantees and give a brief justification
Debate:
Is such a guarantee desirable? Do similar guarantees exist already?
Why do you think they do not exist?
Should such a guarantee apply to all insurances?
150
Appendices
Table 15: Focus group “consumer protection”
Topic
Approach / issue
5. Consumer protection
1. How do you define consumer protection?
In general › definition
In insurance matters
2. Can you name any consumer protection measures off the cuff?
6. My “guardian angel”
1.
2.
3.
4.
5.
6.
7.
Who or what currently is protecting you and your interests in insurance
matters?
Please complete the following short questionnaire
We will now consolidate our findings
Discussion of individual points › poster
Find out what the respondents know about the Swiss Insurance Association (do not
mention its sponsorship of the study)
Focus strongly on autonomy
a. Where / why?
b. What role should the state assume?
How can insurance buyers be enabled to act in a more autonomous fashion ›
Measures
Which areas need to be regulated more closely?
(Security, transparency, price/performance ratio, goodwill, advisory activities)
7. The measures game
1.
2.
3.
4.
Which consumer-protection measures would you want to be guaranteed
by law?
I shall now introduce various measures
› Please stick your dots on the three measures that interest you the most
How much would you be willing to spend on additional consumer protection in
insurance matters?
› Please discuss and note an amount in CHF
a. To be followed by a plenary discussion and justification of the amount chosen
You now can bid for measures. Of the amount chosen, how much would you allocate
to implementing this measure?
a. Possibly just work in groups / let group choose
Please explain why you did/did not bid on this measure
What other measures suggest themselves to you?
Appendices
Appendix F
Table 16: Interview guidelines
Topic/Issue
1. Personal data
––
––
––
––
––
––
Name and first name of the interviewee
Profession
Gender
Age
Region
Highest educational qualifications
2. Introduction
Thank the interviewee for his/her time and willingness to participate. Introduce yourself
briefly.
–– We shall be talking about insurance matters.
We are not interested in testing your knowledge, but we would like to learn about
your experiences and opinions. There are no right or wrong answers as these can vary
from person to person.
Inform the interviewee that the interview will be recorded digitally:
–– Instead of wildly taking notes, the interviewer can thus concentrate on the statements of the interviewee.
–– All recordings will be deleted once the project has been completed.
–– We vouch for this with our name (member of ESOMAR).
Outline the interview content and procedure:
–– The interview will take about 45 minutes to 1 hour
3. General insurance matters
1. What do you spontaneously associate with insurance?
–– Why?
–– Is your opinion based on any specific experience?
2. Personally, how do you rate the general significance of insurance?
–– Please score your rating on a scale from 1 to 10 (1 = insignificant / 10 = highly
significant)
– choose any number in between to nuance your statement, if you wish;
Differentiate by product › life insurance / property and casualty insurance
3. Who decides about insurance in your household?
4. Please tick off all insurance policies held by you (separate list).
4. Decision-making in the insurance context
5. You have just listed various instances of taking out insurance or adjusting coverage.
Which event do you recall most clearly?
–– When exactly was that?
6.
––
––
––
––
What exactly happened while you were taking out / adjusting insurance coverage?
When did you first consider taking out this type of insurance?
How long did it take you to effectively subscribe?
Why did you choose to subscribe at that particular time?
Can you tell me what triggered your decision to subscribe this type of insurance?
(not applicable to mandatory health insurance)
152
Appendices
Topic/Issue
7.
––
––
––
––
How did you find suitable insurance cover?
How did you proceed when gathering information?
Did you look for information yourself?
Where did you get information about the product best suited to your needs?
How did you find the insurance provider best suited to your needs?
8.
––
––
––
––
How did you decide in favour of taking out life insurance?
What were the key questions for you?
How and where did you gather information?
Did you immediately find the information needed to make your decision?
Did you compare various offers? If so, how did you proceed? (criteria for
comparison?)
–– How long did it take until you signed the insurance contract? How intense was this
phase? Would you have liked to have had more time at your disposal?)
9. You are considering taking out life insurance.
–– How do you proceed?
–– How do you gather information?
– What do you do in case of contract-related questions?
5. Obtaining advice
10. Did you talk to an insurance adviser when in need of insurance cover?
If not:
Please try and recall your last contact with an insurance adviser. Did you call on the
adviser or did the adviser call on you?
No previous contact with insurance advisers:
Why do you not use any insurance adviser? What bothers you about insurance
consultations?
11. What were the reasons for meeting this insurance adviser?
–– Advisers working for an insurance provider known to the interviewee
–– Do you know for whom this person is working? (Differentiate between brokers
and advisers)
–– Where did the consultation take place?
–– Did you do detailed research before consulting?
–– Have you had other consultations?
12. What do you think about the adviser? What do you think about the service he/
she offered?
–– Would you rate the adviser as a person whom you trust? Why?
–– Was the adviser able to offer you suitable products?
–– Why did you then decide in favour of this product/provider?
13. What are you looking for in an insurance consultation?
Appendices
Topic/Issue
6. Autonomy
14. Taking out insurance generally involves some paperwork (documentation and
contracts). How deeply do you look into those documents?
–– To what extent does the person want to familiarise himself/herself with the terms
and conditions before subscribing? What is the significance of details etc.?
–– Do you consult your family and/or friends?
–– What do you do if you don’t understand a term or condition?
–– Does someone assist you with the final decision before you subscribe?
–– Do you get further consultations?
Please try and imagine the following: You consult an insurance adviser with a view to
taking out life insurance. You follow his/her advice and subscribe to the life insurance
policy he/she recommended. Unfortunately, there is a slump in the market and your
final benefits are significantly smaller than expected.
–– What is your first reaction?
–– What do you do?
7. Literacy
15. Let’s say that a close friend of yours wants to take out insurance. He/she is asking you
for advice – is this a realistic scenario?
–– If you have already been consulted by a friend, what was the type of insurance
involved?
–– In your own view, what are the types of insurance you could competently discuss
with friends of family members?
16. You have taken out household insurance / motor insurance. Do you therefore have
coverage in case your sink (side mirror) gets damaged?
8. Attitudes (trust / mistrust rule of law)
17. Let’s say you have notified your liability insurer of a claim. However, your insurance
provider is of the opinion that your coverage does not extend to such a claim and
refuses to settle. What would you do?
18. Do you know the insurance ombud office?
–– In your eyes, would the ombud office be able to help you and if so, to what extent?
19. Are you convinced you could assert your rights vis-à-vis the insurance provider in a
real-life dispute? Why?
20. To what extent can the state be of assistance to you? Why?
–– Do you feel protected by the state in general (e.g. in litigation matters etc.)?
If so, to what extent?
154
Appendices
Appendix G
Table 17: Classification of various household types according to income groups – income thresholds
(Source: Swiss Federal Statistical Office – Household Budget Survey (HBS), Assumption: all children < 14 years)
Gross monthly household income,
in CHF
(Basis: overall population)
Floor
Cap
Singles
3,868
8,289
Couples
5,802
12,433
Couple, 1 child
6,962
14,919
Couple, 2 children
8,123
17,406
Couple, 3 children
9,283
19,892
Single parent, 1 child
5,028
10,775
Single parent, 2 children
6,189
13,262
Appendices
Table 18: Online survey (questionnaire)
Topic
Question
I. Current situation
1. Are you …
a man
a woman
2. What’s your nationality? Selection from a list of countries
3.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
What’s the year of your birth?
>1950
1950–1959
1960–1969
1970–1979
1980–1989
<1990
Place
4. Please indicate the postcode of your domicile.
Personal circumstances
5. How many people are living together in your home?
(i) Adults
(ii) Children
6.
(i)
(ii)
(iii)
Who decides about insurance in your household?
I am the main decision-maker
I make joint decisions with someone else
Someone else
Education
What is your highest educational qualification?
No school-leaving certificate
Secondary school, comprehensive, junior high school
High school, apprenticeship (Federal Certificate of Proficiency EFZ)
Swiss upper-secondary level academic qualification (Matura, Berufsmatura)
Higher vocational education (technical college diplomas,
federal diplomas and federal professional diplomas)
(vi) University of Applied Sciences and Arts, teacher training college)
(vii) University
Profession
8. Do/Did you haveany professional dealings with insurance or
the insurance industry?
(a) Yes
(b) No
Employment status
9.
(i)
(ii)
(iii)
(iv)
(v)
Income
10. A. What is your gross monthly household income?
(income from gainful employment plus all social insurance benefits of all persons living in the
same household)
(i) below CHF 3,900
(ii) between CHF 3,900 and CHF 8,300
(iii) above CHF 8,300
7.
(i)
(ii)
(iii)
(iv)
(v)
Are you at all employed?
Full-time employed
Part-time employed
Self-employed
In training
No gainful employment
156
Appendices
Topic
Question
B. What is your gross monthly household income?
(income from gainful employment plus all social insurance benefits
of all persons living in the same household)
(i) below CHF 5,800
C. What is your gross monthly household income?
(i) below CHF 7,000
D. What is your gross monthly household income?
(i) below CHF 8,100
E. What is your gross monthly household income?
(i) under 5,000
(ii) between 5,000 and 10,800
(iii) over 10,800
F. What is your gross monthly household income?
(i) below CHF 9,300
(ii) between 9,300 and 18,900
(iii) over 18,900
G. What is your gross monthly household income?
(i) below CHF 6,200
Insurance
11.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Which insurance policies do you hold?
Motor vehicle insurance
Household insurance
Liability insurance
Life insurance
(a) Yes
(b) No
Appendices
Topic
Question
I. Current situation
12. Which of the following insurance policies did you actively modify or take out during
the last two years?
(i) Motor vehicle insurance
(ii) Household insurance
(iii) Liability insurance
(iv) Life insurance
(v) Supplementary health insurance
(vi) Legal expenses insurance
(a) Yes
(b) No
II. Interest in insurance matters
Please indicate your agreement with the following statements (strongly agree –
strongly disagree [scale from 1 to 7])
13.
14.
15.
16.
17.
I am fairly interested in insurance matters.
Looking at my personal interests, insurance products are not relevant to me.
I focus on the topic when wanting to take out insurance.
I actively compare various offers when wanting to take out insurance.
I often compare my current insurance contracts with other offers.
III. Information behaviour
Which access channels? 18. A. Please indicate how intensively you used the following sources when taking out or
Active / passive
modifying (question 12, random – overweight life insurance).
(“extensive use” to “not at all” [scale from 1 to 5])
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
Internet site of an independent comparison service (e.g. Comparis)
Telephone calls to/from the insurance provider
Forum, discussion group or social media (e.g. LinkedIn, Facebook)
Direct contact (face to face, over the telephone or via email) with an insurance agent
(insurance adviser tied to the insurance provider)
Direct contact (face to face, over the telephone or via email) with a broker
(independent adviser)
Direct contact (face to face, over the telephone or via email) with a bank adviser
Advertising (print, TV)
Consumer magazines (e.g. Der schweizerische Beobachter)
Retailer
Smartphone Apps of the insurance provider
158
Appendices
Topic
Question
B. Please indicate how intensively you would use the following sources when taking
out (question 11, random – overweight life insurance).
(“extensive use” to “not at all” [scale from 1 to 5])
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
Internet site of the insurance provider
Forum, discussion group or social media (e.g. LinkedIn, Facebook)
Direct contact (face to face, over the telephone or via email) with an insurance agent (insurance adviser tied to the insurance provider)
Direct contact (face to face, over the telephone or via email) with a broker (independent
adviser)
Advertising (print, TV)
Consumer magazines (e.g. Der schweizerische Beobachter)
Retailer
19. A. Please indicate where you concluded/signed the insurance contract.
(yes / no)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
adviser)
Retailer
B. Please indicate where you would like to conclude/sign the insurance contract.
(yes / no)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
adviser)
Retailer
Please indicate your agreement with the following statements
(strongly agree – strongly disagree [scale from 1 to 7])
Appendices
Topic
Question
IV. Autonomy
Preference for
delegating decisions
20. My adviser should make important decisions about my insurance, not me.
21. I should follow the advice of my adviser even when I do not agree with it.
22. When I take out new insurance policies, I should not make any of the decisions
myself.
23. I am in a position to make autonomous routine decisions with regard to my
insurance.
24. If there were to be a fundamental change in my personal circumstances, I would
prefer my adviser to take a more active role in the decisions to be made.
25. My adviser should decide how often my insurance requirements need to be reviewed.
Please indicate the answer that applies to you.
1 = on my own
2 = mainly on my own in agreement with my adviser
3 = by my adviser and myself, jointly
4 = mainly by my adviser, in agreement with me
5 = my adviser on his/her own
Involvement in
decision-making
processes
26. When taking out new insurance who should make the final decision, after I’ve been
informed by my adviser about the risks and benefits of the product?
27. When modifying an existing insurance contract, who should make the final decision,
after I’ve been informed by my adviser about the risks and benefits of modifying my
contract?
28. When wanting to terminate an existing insurance contract, who should make the
final decision, after I’ve been informed by my adviser about the risks and benefits of
terminating my contract?
V. Need for protection
Please indicate your agreement with the following statements, assuming that you have not
yet taken out any (insert type of insurance from question 18).
Financial Risk
29. If I took out (… insurance) in the next 12 months, I would not be sure if my
financial investment would ever be profitable.
30. Taking out (… insurance) is expensive.
31. Taking out (… insurance) is not worth the money you pay for it.
Time Risk
32. Taking out (… insurance) consumes an excessive amount of my time.
33. Taking out (… insurance) just wastes my time.
34. I do not have much time to spare in daily life. Taking out (… insurance) feels
stressful as I have no time for doing so.
Performance
Risk
35. If I took out (… insurance), I would not be sure if I were ever to get the benefits
promised to me.
36. If I were to sign a (… insurance) contract, I would feel uneasy about my ever getting
claims met or costs settled.
37. If I think about taking out (… insurance), I feel uneasy about the provider’s honouring its promises.
Please indicate your agreement with the following statements
160
Appendices
Topic
Question
VI. Rule of law
Need for
governmental
Protection
38. The state should regulate the insurance market more tightly in order to protect
consumers.
39. The official authorities should offer more support about what insurance to take out.
40. The high level of consumer protection in the field of insurance makes me feel safe.
41. I know my rights as a policyholder well.
42. Drafting and implementing legal requirements costs money. To what extent are you
willing to contribute to the costs for additional consumer protection in insurance?
(i) I am prepared to accept a marginal increase in my insurance premium (up to 5%) for additional consumer protection.
(ii) I would be prepared to accept an increase of some 10% in my insurance premium for
additional consumer protection.
(iii) I want additional consumer protection. Consequently I am prepared to accept premium
increases, regardless of how high they are.
(iv) I am prepared to pay higher taxes in order to cover the costs.
(v) I am not prepared to pay for additional consumer protection.
VII. Reaction in case of claims
43. Imagine your motor vehicle insurance refuses to assume the full cost of damages to
your vehicle. What do you do?
(i) I would certainly complain, that’s what insurance is for, after all.
(ii) I would complain if I were of the opinion that I am clearly in the right, even if the unpaid
amount were negligible.
(iii) If the unpaid amount were negligible, I would accept the insurance provider’s decision.
(iv) There is no sense in lodging a complaint with an insurance provider. They will assert themselves anyway.
Please indicate your agreement with the following statements.
Perceived control
44. As a customer I can do a lot to get the best insurance benefits for my money.
45. With enough effort I can get very good insurance benefits for my money.
46. If I take play an active part in discussions with an insurance provider, I can exert a
lot of influence as a consumer.
47. In the end, I am the consumer, therefore I am responsible for obtaining the best
insurance for my money.
Please indicate your agreement with the following statements in connection with
your (insert type of insurance used in question 18).
Appendices
Topic
Question
VIII. Perception of fairness
I will receive adequate compensation for my claim.
I will receive more or less the same compensation as in similar previous claims.
When settling my claim, the insurance provider will give me what I need.
All in all, I will receive fair compensation.
Distributive
fairness
48.
49.
50.
51.
Interactive
fairness
52. The representatives of my insurance provider will be interested in my case.
53. The representatives of my insurance provider will understand my case and show
empathy.
54. In my view, the representatives of my insurance provider will treat me with a lack of
due courtesy.
Procedural
fairness
55.
56.
57.
58.
59.
The representatives of my insurance provider will try hard to solve my problem.
All in all, the representatives of my insurance provider will act fairly towards me.
The insurance provider will react fast in my case.
In case of a claim, the insurance provider will let me explain my point of view.
All in all, the claims settlement process will be fair.
IX. Knowledge / Literacy Basic Financial Literacy
Interest rate
60. Imagine you had CHF 100 in your savings account and it earned 20% interest per
year. You leave the money in your account for five years.
What would your account balance be at the end of that period?
(i) Over CHF 200
(ii) Exactly CHF 200
(iii) Under CHF 200
(iv) I don’t know
(v) I prefer not to answer.
Inflation
61. Imagine you earn 1% interest on your account and inflation is 2% per year. How
much can you buy with the money in your account after one year?
(i) More than today
(ii) The same amount of goods and services as today
(iii) Less than today
(iv) I don’t know
Time value of money
62. Imagine that a friend of yours inherits CHF 10,000 today, whereas his/her cousin
inherits CHF 10,000 in three years’ time. Who is richer because of their inheritance?
(i) My friend
(ii) His cousin
(iii) There is no difference in wealth
(iv) I don’t know
Purchasing Power
63. Imagine your income were to double in 2016 and all prices doubled as well.
How much would you be able to buy with your income in one year’s time?
(i) More than today
(ii) The same amount of goods and services as today
(iii) Less than today
(iv) I don’t know
162
Appendices
Topic
Question
X. Consultation and advice
64. What is your main reason for taking out insurance or modifying an existing
insurance contract?
(i) My adviser brings insurance offers or needs for modifications to my attention.
(ii) I reassess my insurance cover, when my personal circumstances change (e.g. when moving
house, changing jobs, marrying etc.).
(iii) I’ve learned about new insurance offers that are attractive to me.
(iv) I’ve learned about more advantageous insurance offers.
(v) Friends, family members or acquaintances tell me to do so.
(vi) I’m dissatisfied with the service I have received from my insurance provider.
(vii) I’ve had an unhappy claims experience.
65. Are you going to seek professional advice about insurance in the next five years?
(a) yes
(b) no
B. Why do you prefer not to seek advice? Please indicate your agreement with the
following statements.
(i)
(ii)
(iii)
(iv)
(v)
I do not have confidence in advisers.
I find the contact with an adviser unpleasant.
I prefer doing my own research.
I don’t have any time for a consultation.
I have not found an appropriate adviser up to now.
66.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Who will probably advise you professionally within the next five years?
Motor vehicle insurance
Household insurance
Liability insurance
Life insurance
(i) Insurance agents
(ii) Brokers
(iii) I will not seek any advice.
Independence
67. Who tends to act free of self-interest and tries to find the best offer for his/her
customer:
(i) Insurance agents
(ii) Brokers
(iii) I can see no difference.
68. When taking out insurance I want to
(yes / no / I don’t know)
(i) know my insurance agent’s commission.
(ii) know my broker’s commission.
Appendices
Topic
Question
X. Consultation and advice
69. Please indicate your agreement with the following statements.
(yes / no / I don’t know)
(i) Insurance agents should get a commission when concluding a contract.
(ii) I would rather pay a fee to my broker than have him get a commission from the insurer
when concluding a contract.
(iii) I want to choose between paying a fee to my broker or having him get a commission from
the insurer when concluding a contract.
Why do you seek advice? Please indicate your agreement with the following
statements.
Literacy
70. I feel out of my depth when dealing with insurance matters.
Information-gathering
and research
71. It was important for me to compare the results of my own research with the offers
of a professional adviser.
72. This person has always advised me.
Convenience
73. I would like to spend the least possible time and money on taking out insurance.
Perceived Risk
74. I am confident that my adviser will put together the best possible offer for me.
It is important for me to know …
Trust
75. … that my adviser personifies integrity and authenticity.
Friendship
76. … that I can establish a personal relationship with my adviser.
Customization
77. … that my adviser can tailor solutions to my needs.
Customer
Orientation
78. … that my adviser responds to my personal needs, before starting to offer solutions.
Know-how
79. … that an adviser is able to answer my questions soundly.
Right of cancellation
The right of cancellation enables you during a certain period to withdraw from a
contract after it has been concluded. It is quite similar to the right of return when
buying clothes. Please indicate your agreement with the following statements.
XI. Measures / FIDLEG / VVG
80. For me, insurance products with a right of cancellation are more attractive than
contracts I cannot withdraw from, even if the former were slightly more expensive.
81. The State should introduce a cancellation period of two weeks for insurance contracts.
82. I do not think that insurance products need to feature a right of cancellation.
83. Insurance providers should voluntarily commit to a two-week cancellation period
following the conclusion of a contract.
164
Appendices
Topic
Right of termination
Pre-contractual information requirements
Question
84. Imagine that you need to renew your household insurance or take out new household insurance. Which option would you choose?
(i) Contract A, basic duration: 1 year (no early termination during this period), Premium: CHF
250/month;
(ii) Contract B, basic duration: 2 years (no early termination during this period), Premium: CHF
225/month;
(iii) Contract C, basic duration: 3 years (no early termination during this period), Premium: CHF
200/month
Imagine you were to get a summary of key information before signing the insurance
contract (similar to a package leaflet for medicines).
85. What is the key information needed when taking out household insurance? Please
select the five most important features.
(i) Notice periods
(ii) Overview of exclusions from cover
(iii) Data on the adviser’s commission
(iv) Information on data protection
(v) Overview of insurance benefits
(vi) Overview of complaints mechanisms
(vii) Overview of what happens to your contract if the insurance provider is insolvent
(viii) Criteria for setting premiums
86. What is the key information needed when taking out life insurance?
Please select the five most important features.
(i) Notice periods
(ii) Overview of exclusions from cover
(iii) Data on the adviser’s commission
(iv) Information on data protection
(v) Overview of insurance benefits
(vi) Overview of complaints mechanisms
(vii) Overview of what happens to your contract if the insurance provider is insolvent
(viii) Criteria for setting premiums
(ix) Overview of the risks of your investment
(x) Information on what happens if you want to withdraw from your contract
Pre-contractual
disclosure obligation
87. Mr. Schweizer’s car keeps getting damaged because he lives in a troubled neighbourhood.
He takes out new motor vehicle insurance including damage to property coverage. He states
that he has not suffered any damages to property in the last years. His car gets damaged
once again, he puts in a claim with his insurance provider and the car gets repaired. The
mechanic tells the insurance provider that this is not the first damage to Mr. Schweizer’s car.
Which statement would you call fair?
(i) The insurance provider hat to settle the claim anyway, that’s their job, after all.
(ii) The insurance provider hat to settle the claim anyway, as Mr. Schweizer could not have
known that his car would get damaged again.
(iii) The insurance provider is entitled to reclaim the costs from Mr. Schweizer and to adjust the
premium.
(iv) The insurance provider is entitled to reclaim the costs from Mr. Schweizer and to terminate
the insurance contract.
(v) The insurance provider is entitled to reclaim the costs from Mr. Schweizer, to terminate the
(vi) Mr. Schweizer should be registered in order to protect other, future, insurance providers.
Appendices
Topic
Question
XI. Measures / FIDLEG / VVG
88. Ms. Meier suffers from chronic asthma. She wants to switch to another private health
insurance provider, but she fears that her condition will make that impossible. Therefore she
conceals her chronic asthma. Having developed glaucoma, Ms. Meier seeks treatment during
which her chronic asthma affliction comes to light. The insurance provider gets a notification.
Which statement would you call fair?
(i) The insurance provider hat to settle the claim anyway, that’s their job, after all.
(ii) The insurance provider has to settle the claim as the two illnesses (asthma and glaucoma)
are not linked by a common cause.
(iii) The insurance provider is entitled to reclaim the costs from Ms. Meier and to adjust the
premium.
(iv) The insurance provider is entitled to reclaim the costs from Ms. Meier and to terminate the
insurance contract.
(v) The insurance provider is entitled to reclaim the costs from Ms. Meier, to terminate the
(vi) Ms. Meier should be registered in order to protect other, future, insurance providers.
Ombud system
89.
(i)
(ii)
(iii)
(iv)
Would you be in favour of creating an ombud office for insurance matters?
Yes
No
Such an office exists already.
I don’t know
87. What is the organisation of the ombud system for insurance matters?
(i) There is an ombud office for all lines of insurance.
(ii) There are two ombud offices: one for health insurance matters and one for life and non-life
insurance.
(iii) Each line of insurance (property insurance, life insurance, health insurance) has its own
ombud office.
(iv) I prefer not to answer this question.
88. What is the role of an ombud office for insurance matters?
Please rate the following statements. (yes/no)
(i) It advises me in general matters of insurance.
(ii) It provides me with information if I feel that I have been treated unfairly.
(iii) It mediates in case of problems and/or conflicts with the insurance provider and drafts
settlement proposals.
(iv) It goes to court on my behalf.
166
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