In this article I aim to highlight how customers’ perceptions of an industry as a whole can be impacted by seemingly punitive pricing practices (in this specific case, insurance admin fees to change policyholder details).

This article does not intend to ignore the work done by a good number of insurers to remove these fees but, rather, to discover why customers react as they do to the pricing practices of a small number of players and how this impact is amplified through association to tarnish an entire industry.

The Modern Customer

Customers have changed.

We expect our services to be provided at the click of a button, our loyalty to be rewarded through membership benefits and goods to be returned as easily as they are sent out the same day.

That there is cost embedded in all of this does not enrage the modern consumer, they see a fast, easy, fair and cheap service delivered to their door.

Then they encounter the insurance industry. An industry that still does not reward loyalty appropriately through their renewal pricing (see here) and a small number of players who punish their customers through large admin fees when they update their details. This experience is incongruent with the 90% of other interactions in the modern consumer’s daily life and causes a significant backlash.

My Experience

In recent months, I have seen two rather ferocious and unflattering comments on my own social media feed about insurer’s practices relating to administration fees. Why, they ask, do they pay fees of £50 to change details that the insurers themselves need to know? Indeed, a complaint-handling group, Resolver, highlighted the scale of the problem when they revealed that they had received 250 complaints in 6 months relating to admin fees alone. [1]

Both the appearance and ferocity of the outburst caused me to reflect on the drivers of the reaction to what the customers clearly thought of as ‘punitive pricing’.

A Natural Response to Unfairness

An answer, it seems, may be found in neuroscience.

The SCARF model (an acronym) was developed by David Rock, Founding President of the NeuroLeadership Institute. It aimed to show how companies could avoid common organisational pitfalls by better understanding natural human reactions. It is to the F (Fairness) which I now turn.

According to David Rock, a perceived unfair event, say incurring expensive admin fees when changing your insurance details, generates a very strong threat response within the limbic system, which is a more primitive/animalistic part of the brain. Stimulation of the limbic system generates hostility and triggers an automatic threat response – not exactly the reaction you want from your customers! [2]

Trust is an Industry Problem

There is, however, a more corrosive impact on the industry as a whole. This is because there is a generalising side effect created from the unfairness, where customers begin to make ‘accidental connections’, thinking all other insurers are likely to act in the same way. [2]

This has a significant knock-on effect to customers’ trust in the industry. Indeed, Grant Thornton’s Customer Loyalty & Experience Index shows that, despite the global banking crisis, insurers still lag behind the retail banks on the issue of trust. Admin fees may not be the entire reason for the mistrust but it certainly builds a sense of unfairness which impacts the entire industry through these ‘accidental connections’.

Potential Solutions

To my mind there are at least three simple solutions to this problem:

  1. Build the average cost of administration into the cost models.
  2. Reduce the fees to the level of the cost-to-administer (I fear for the organisation with a £50 cost-to-serve figure!).
  3. Invest in digital/automated solutions where the cost of amending policy documents is nominal.

Overall, the few players still charging these punitive fees are letting the side down. They are increasing the opportunities for challengers to promote themselves as customer-centric brands that recognise that the lives of modern customers are dynamic and operate outwith the annual renewal cycle (e.g. Trov).

In the long-term, therefore, admin fees are likely to disappear but how much damage will be done to the reputation of the industry as a whole in the meantime?


[1] Mirror (2017)

[2] Strategy-Business (2009)