Hamon Law: risks and opportunities for the insurance sector

On 1 January 2015, the enforcement of the Hamon Law sounded the death-knell for coercive relationships between insured consumers and their insurers: after the first year of a contract, there is no longer an anniversary date, or a need for communication by registered post in order to terminate the current contract.

This of course harks back to the Chatel Law, which already aimed to simplify the lives of consumers by making it easier for them to switch mobile phone operators. For a decade now, new mobile phone subscribers have been powerful churners, seeking the best deals.

The Hamon Law will most likely increase the number of churners in insurance, a market that is looking to build customer loyalty due to a very high customer acquisition cost—approximately €500 for each new customer. Will the insurance market be badly hit by enforcement of this new law? At the moment, it is difficult to say, although the market is expressing this fear.


Hamon Law: Insurers and mutual benefit companies in the firing line

The risks that have been identified so far include lower tariffs and an increase in the market share of bankinsurers, low-cost insurers and newcomers. This law could therefore reduce customer loyalty.

With regard to lower tariffs, the Hamon Law should force prices down. However, some observers think that we should work on capping premiums instead. Indeed, insurers’ costs are increasing across the board and they have no alternative but to recover these through their tariffs. A reduction would not therefore be on the agenda, whereas a capping of prices would. Some people believe that the Hamon Law would have the negative effect of increasing car and home insurance prices, for want of enough profitability.

Competition from bankinsurers should not be overlooked by Insurers and Mutual Benefit Companies. They will be able to complement their strategy for entering the insurance market by relying on strong distribution networks and the captivity of their banking customers. Insurers who are very aggressive on pricing (low-cost and those offering online deals) can only benefit from this measure. Other winners will undoubtedly be price comparison websites (despite a difficult launch, Google is trying again in California)

It should be noted that the main French insurers (excluding MAAF and MMA) are not found on comparison websites, as their model is too focused on price rather than on services. Would this new law provide an opportunity for insurers to organise price comparison themselves on their own websites? The Progressive Group of Insurance Companies in the USA offers these kinds of service: comparison of their tariffs with those of their main competitors, as well as reverse pricing, two initiatives that have never been seen in France.

At first glance, this is hardly encouraging, as it means stiffer competition, which, combined with greater flexibility, would encourage customers to be more fickle.

With change comes opportunity

The first opportunity identified is that of new competition in credit-insurance, in favour of traditional insurers. This insurance has increased by 10% since 2012 and, since 26 July 2014, there has been a one-year cooling-off period to find an alternative to that offered by the lending bank. Many borrowing households (37% on average) seize this opportunity on which traditional insurers should easily be able to capitalise, as their premiums are up to 3 times lower than those of lending banks.

To ensure greater freedom for insurance customers, the Hamon Law places restrictions on insurers, but it also offers them a great opportunity to take back control of the relationship they have with their customers. Insurers suffer from a lack of regular contact with their customers, apart from when a customer wants to renegotiate or make a claim and follow up compensation. In either case, communication is strained, so by encouraging further contact to demonstrate their expertise, by working on prevention and by being attentive to their customers, insurers will be able to defend their pricing positions.

Connected car

Insurers can also improve customer retention by enhancing their services, and in this way digital and the advent of connected objects in our households are a source of endless inspiration. Allianz and Axa have already connected their customers’ vehicles for increased security and to ensure savings for responsible behaviour (environmentally friendly and safe driving, etc.). Oscar, the New York insurer, in addition to a surprisingly simple customer journey for the sector, offers to subsidise customers who really want to stay in shape and who prove it! Axa has also done work on a model similar to Oscar’s, rewarding active customers with alternative medicine consultations. Connected cars, connected homes, gamification, fun health and adaptation to new consumer models are undoubtedly some of the keys of this customer retention strategy.

Lastly, insurers undoubtedly know their customers better than they think they do. Their many databases are overflowing with information about their customers. Partial, segmented and siloed data admittedly, as the organisational structures of our insurers are complex, but a lot of information nonetheless. Big Data and in-depth analysis of this unexpected asset could help our insurers to work on their built-in databases (property and casualty, healthcare, contingency and even banking) to push a multi-equipment strategy, as well as global packages for more captive customers.

In conclusion, this law is likely to change certain habits, but risk management is the insurer’s speciality! Everything is in their hands to support quality insurance products and work towards greater customer loyalty.