In 2015 and 2016 we ran some research with insight specialists, Opinium, to explore these key questions:
- What do consumers think they know about the most popular financial and insurance products?
- How confident are they to buy certain products without talking to a financial adviser?
- What support would they find useful to help them navigate the perceived complexities of the FS market, with the outcome of making them more likely to buy unassisted?
Wind forward 7 years from the last study, and in the context of The Consumer Duty (phase 1) which is right upon us, we decided to re-run the study with Opinium in April 2023. The Consumer Duty angle is important because of the prominence of communication and consumer understanding being a key plank in the CD rules. I’ll come back to that later.
How well do consumers understand different products?
The research asked respondents to rate their level of knowledge across 7 different product categories. It’s not surprising that the key commodity products – Motor and Buildings and Contents Insurance are top of the ‘understanding charts’. This is exactly the same outcome as we previously discovered in 2015 and 2016.
There’s a big gap between these commoditised products and Life Insurance, despite the simplicity of Life Protection. Interestingly, looking back at the 2015 results for Pensions, there has been a noticeable improvement in general understanding of Pensions, but no real change in Life Insurance. Auto enrolment which came in during 2012, has focused people’s minds on pensions and this effect has undoubtedly helped shift the levels of understanding from 64% in 2015 to 71% in 2023. This is a positive outcome, however it shows how improving understanding is a long term project.
The Consumer Duty angle
This brings me onto The Consumer Duty angle. Delivering the outcome of ‘Consumer Understanding’ has been interpreted by most providers as a need to review and improve their marketing communications. Many companies have invested significant sums in testing their materials and web content via consumer panels and then making improvements in the expectation that when consumers are in the real world of buying a financial product, then they’ll fully understand what they are doing.
Whilst this will go someway to improving consumer understanding, however I’ll refer to our previous research to explain the pitfalls of solely relying on this approach.
Consumers overestimate their knowledge
We previously proved in our 2015 and 2016 research that when consumers rate their own perceived levels of knowledge of financial products, it is generally over-stated. This chart summarised the position across a range of products. These results were achieved by asking the questions in chart 1, then testing people with specific questions which required a correct factual answer to demonstrate real understanding.
Relying purely on the research of materials in a ‘false environment’ will inevitably mean a number of people will misstate their understanding. Our research also profiled respondents by age, demographics and size of investment. There are considerably differences here, and any research forum needs to understand in a quant sense, the factors, in order to construct a panel which replicates the expected behaviours of real consumers.
Giving consumers confidence to make a right decision
The mass market may still find financial advice unaffordable, so if they are to make plans to protect or invest themselves, then they need two things. Knowledge and confidence. Much has been written and initiated on the subject of improving financial literacy over the years, however we still haven’t seen great strides in the take up of products. The Protection Gap remains wide and people still don’t save enough for their futures.
One feature of the research we tested on each of the 3 waves was confidence to buy without the support of a financial adviser. We mapped self-perceived levels of knowledge against confidence to buy without advice. The results showed a noticeable gap between the 2, in other words ‘despite my feeling I know a lot about the product I still don’t feel confident to buy without a financial adviser’.
In our quest to explore this whole area, we tested a range of interventions which would give the consumer more support to make their own decisions. The results across the 3 waves of research have been very consistent. One tool we created and implemented was ahead of its ‘Consumer Duty time’ and involves real time checking of consumer understanding at the point of purchase. We have 6 years of data on how the worked and it underlines my earlier point that many people are at risk of buying products they don’t fully understand.
Get the full picture
We have much more data on all of the above than we can do justice to in this short article, including the latest research findings and some strategies for adding to your Consumer Duty responses. Please get in touch and we’d be very happy to run a dedicated session on the topics mentions in the article.