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Customer Insight & Conduct Risk


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Presentation given to Insurance Marketing & Distribution Europe Summit in Dec 2015

Published in: Business

Customer Insight & Conduct Risk

  1. 1. Customer Insight & Conduct Risk How Customer Insight can help YOU manage Conduct Risk, not the FCA
  2. 2. Why should you listen? ❖ Created and lead customer insight teams for all the major insurance brands, products & channels used by Lloyds Banking Group over 13 years ❖ Added over £11m incremental profit to bottom line annually ❖ Pioneered LBG work with FCA on Behavioural Economics testing insurance communications ❖ Developed capability into a team of 44 & mentored next generation of leaders Paul now leads Laughlin Consultancy, a specialist business: “Helping businesses make money from customer insight” Laughlin Consultancy helps companies maximise sustainable value from their customer insight, for example by growing their bottom line, improving customer retention and demonstrating to their regulator that they treat customers fairly.
  3. 3. © Laughlin Consultancy Ltd Customer Insight & Conduct Risk ❖ Why should you care?  ❖ FCA’s Consumer Spotlight segmentation ❖ Behavioural Economics impacts your comms ❖ The diverse challenge of Vulnerable Customers ❖ How analytics & research can keep the FCA doctor away 3
  4. 4. Breadth not Depth 4
  5. 5. WHY SHOULD YOU CARE? Why Conduct Risk should matter to every marketing & sales leader 5
  6. 6. © Laughlin Consultancy Ltd Did you care about eating horse-meat? 6
  7. 7. © Laughlin Consultancy Ltd FCA model of Conduct Risk 7
  8. 8. © Laughlin Consultancy Ltd 5 Pillars of Conduct Risk 8 Business Model & Strategy The risk of unfair outcomes for your customers Culture, Govern & Control Product design & approval process Sales Post Sales handling Strategy Process Conduct MI Formal meetings Cultural transform Product development & review processes Formal sign-offs Decision Science (esp. BE & comms) Post-Sale processe
  9. 9. © Laughlin Consultancy Ltd FCA Fines are growing 9
  10. 10. © Laughlin Consultancy Ltd FCA Fines @ May 2015 10 Company & Fine Reason for Fine ‘Pillars’ Impacted Chase De Vere (IFA) Ltd - £560K Sold Keydata products to customers but didn’t understand or research the products themselves to understand the potential risks to customers. This led to them failing to disclose features and it was found that their communications to customers didn’t meet the clear, fair and not misleading criteria. Product Design Sales Swinton – Group fined £7.4M and 3 former directors £928K A culture of aggressive sales and focus on profit was considered evident which led to the miselling of monthly add on insurance policies. It was found that the company or senior directors did not put the customer at the heart of the business. Culture & Governance Sales Yorkshire Building Society - £4.135M It was found that Yorkshire BS did not act quickly enough to identify and act upon customers who were encountering payment difficulties. Even though the Yorkshire BS correctly used repossession as a last resort the delays in understanding problem cases and identifying future financial prospects of customers led to increases in fees etc. Included a lack of training for staff and issues with complaint handling. Sales Post Sales (vulnerable customers) Stonebridge (Aegon) - £8.4M Stonebridge targeted low and middle income customers with low levels of qualifications but sold them expensive polices and also actively discouraged cancellations. Issues where found with outsourcing controls, governance and complaint handling. Business Model & Strategy Culture, Governance & Controls Product Design (target market) Sales Post sales Credit Suisse International - £1.429M Emphasised the maximum return for its Cluquet Product in its literature even through the chances of obtaining this maximum return was close to zero. This was given undue prominence in literature etc. This was despite complaints and warnings from groups such as WHICH. Culture & Governace Product Design (comms) Sales
  11. 11. © Laughlin Consultancy Ltd Would you want your Nan to have it? 11
  12. 12. FCA ‘CONSUMER SPOTLIGHT’ What their segmentation means for FS firms & their target markets 12
  13. 13. Understanding Spotlight 13
  14. 14. © Laughlin Consultancy Ltd Understanding Financial Consumers 14 Sex Age Ethnicity Religion Marital status/ lifestage Rule breaking Risk appetite Optimism Well-being Present vs future orientation Life priorities Confidence Affluence State vs individual responsibility Working status Social grade Family networks and support Trust Money management Last purchase experience Debt and use of credit Windfall/ inheritance Level of responsibility for personal finance Employment and job security Advice seeking Life Events Financial products held Access to services Literacy / numeracy Complaints and disputes Mis-selling Planning ahead/ resilience Tenure Health and disability Media usage Proactivity vs inertia Income Towards financial services Switching Experience Attitudes Personal characteristics and lifestyle Behaviour / decision making Channels
  15. 15. How FCA is using Spotlight 15 ‘Proofs of Concept’ initiatives Customer Contact Centre Profiling FCA consumers to build a more effective picture of the types of ‘customer’ the FCA has, and customer management Authorisations Supervision Thematic projects Taking firm customer lists; profiling the customers; examining potential for risk and mis-match with marketing intentions Enforcement Consumer Credit – Consumer journey Using segmentation model to explore differences in use of credit and personal risk, to inform emerging organisation strategy PRR Insight Papers and Reports Using the segmentation model to identify the consumer segments most likely to be affected by a particular emerging risk Victims of Financial Crime Profiling victims to segments; interviewing a sample from key segments to build an understanding of how they got caught, and use the insight to help inform enforcement and communications strategies Policy, Risk & Research Communications
  16. 16. © Laughlin Consultancy Ltd Defining your Target Market 16 Total Market Potential Market Inappropriate (never sell) Target Market Vulnerable Target Market
  17. 17. BEHAVIOURAL ECONOMICS Why you need to test your comms don’t exploit unconscious biases 17
  18. 18. Academic & Political credibility
  19. 19. Behavioural Economics
  20. 20. Why is this relevant to you? Even when you treat them as individuals & target them accurately, your customers could be vulnerable to making poor decisions due to these biases. Do your customers… 1. …find your propositions complex & boring? 2. …need to make decisions based on assessing risk or uncertainty? 3. …need to make trade-offs between the present and the future? 4. …find these decisions emotional or fearful? 5. …lack opportunities to learn by making these decisions?
  21. 21. 10 irrational biases (FCA)
  22. 22. Reference Dependence Assessing gains or losses in comparison to a subjective reference point, one example ifs other propositions on the market or purchase at same time. (Also termed ‘anchoring’)
  23. 23. 10 irrational biases (FCA)
  24. 24. Projection Bias The expectation that your current feelings, attitudes & preferences will continue into the future. So, you underestimate the potential for change.
  25. 25. 10 irrational biases (FCA)
  26. 26. Mental Accounting & Narrow Framing The behaviour whereby people treat money or assets differently according to the purpose assigned to them. Considering decisions in isolation not overall impact.
  27. 27. Spotting the ‘Dark Side’ FCA clearly signalled BE will form a key part of its policy, enforcement & supervision toolkit. FCA have stated they will use these as early warnings: • Rip-offs: Uncompetitively high margins • Suckers: Concentrated profits in small customer group • Bargains: Innovative propositions that appear very cheap • Traps: Contract features that often target BE biases • Regret: Reported or potential regret • Folly: Choices out of line with common sense • Confusion: Observed or likely confusion
  28. 28. VULNERABLE CUSTOMERS How diverse they can be & how to respond to the FCA’s challenge 28
  29. 29. © Laughlin Consultancy Ltd Vulnerable Customers “A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” (FCA) 29
  30. 30. © Laughlin Consultancy Ltd Dimensions of Vulnerability 30 ❖ Worth reading FCA Occasional Paper 8 ❖ Dimensions they expect to be considered are profiled in their Infographic ❖ Not identified explicitly through Consumer Spotlight segments ❖ Research can help marketers understand differing needs of groups ❖ FCA may want to see how mitigate risks for vulnerable groups through product/ comms design, processes or training
  31. 31. © Laughlin Consultancy Ltd Scenario Test your products 31
  32. 32. © Laughlin Consultancy Ltd 32
  33. 33. CUSTOMER INSIGHT How use of analytics & research can keep FCA Doctor away 33
  34. 34. Holistic Customer Insight Customer Data Customer Research Customer Analysis Database Marketing Feel Experiences Test Hypotheses Converge Evidence © Laughlin Consultancy Ltd, not to be used without permission.
  35. 35. Insight-led Good-Conduct Marketing Business Strategy & Segment Participation Strategy Customer Strategy (inc. Brand Promise) Channels & Categories (Strategies) Customer Propositions (Concepts) Product, Price, Promotion, People, Place… (Build) Marketing Campaigns (Design, Target, Execute) Marketing Measurement (inc. ROMI) Communication Approval Annual Product Reviews New Product Approval Insight evidence: Consumer Segmentation Target Segment Understanding Insight Generation Insight guided design: Marketing Measurement Targeting Promotion
  36. 36. Consumer Segmentation
  37. 37. 1. Cross functional teams review data, research and analysis to answer a set of core questions about their target customer and “map the evidence” 2. Those “Evidence Maps” are reviewed to identify key customer themes 3. Structured questioning techniques are used to dig deeper to develop insights A “Customer Insight” is: A non-obvious understanding about your customers, which if acted upon, has the potential to change their behaviour for mutual benefit 4. Insights are prioritised & converged with opportunity areas. to generate ideas Insight Generation Workshops
  38. 38. Marketing Targeting Propensity to Buy Product Propensity to Product Loyalty Propensity to Repeat Purchase Propensity to Brand Response Propensity to Channel Response Timing Event TriggersLife Stages Suppressions & Permissions Optimal Aggregation Optimal Brand Optimal Channel/Media Target Segments Regional Focus Personalised Comms Attitudinal Offers
  39. 39. © Laughlin Consultancy Ltd Eye tracking Comms Testing 39
  40. 40. Model for designing BE tests Identified Customer Need Bias 3? Bias 2? Bias 1? Rational Behaviour Analyse Actual Behaviour Use Eye Tracking to spot issues Test Mitigations (field trials) Refine Behavioural Experiments (panels) Hypothesise Biases at work & Design mitigations Review BE biases that could explain irrational behaviour Comms
  41. 41. Project Innovate
  42. 42. +44 (0)7446 958061 Contacting me: @LaughlinPaul © Laughlin Consultancy Ltd, not to be used without permission.