Holidays, layoffs and general economic uncertainty due to Covid have left consumers understandably worried about their finances. Research conducted by CUNA Mutual Group before and after the onset of the pandemic indicates that as stress continues to mount, consumers are increasingly aware of and interested in financial protection.
Consumer sentiment before the pandemic
At the end of 2019, CUNA Mutual Group studied consumer knowledge about financial protection products (Understanding Preferences for Lending Decision Making). This pre-pandemic study indicated that people’s awareness of financial protection and their likelihood of purchasing were low.
Limited consumer awareness
Among those who recently took out a loan, less than half (48%) of respondents were “very” or “somewhat” familiar with financial protection options and 27% said they were unfamiliar with them at all. Of those seeking or planning to obtain a loan, 37% were “very” or “somewhat” familiar, but almost as many (30%) did not know.
Factors of interest in financial protection
Those who saw the potential value of financial protection tended to:
- Safety first
- Have more valuable vehicles or larger loans
- Have previous experience
- Be more likely to value insurance
- Be more likely to have had the product offered during the loan process or to have had to purchase protection to get their loan.
Those who bought or intended to buy financial protection felt they got their money’s worth, liked the idea of protection, and / or expected future uncertainty. Those who had not chosen protection on a recent loan or had no intention of obtaining it in the future found it too expensive, did not see the need or were not offered the product.
Consumers with concerns about their loan payment had similar concerns
Even before the pandemic, people who worried about their ability to repay their loan – whether they already had a loan or were looking for one – had the same two concerns: unforeseen costs and changes in their lives.
How has the Covid-19 pandemic affected consumer sentiment in terms of financial well-being and financial protection? We will take a look.
The pandemic has increased consumer anxiety
As the pandemic began to sweep the country at the end of the first quarter of 2020, American consumers were understandably worried about their jobs, livelihoods and finances.
Low awareness of early efforts of banks and credit unions
Traditional financial institutions have attempted to meet the growing needs and anxiety of consumers by rapidly improving their products and services. A survey conducted by CUNA and AACUL (American Association of Credit Union Leagues) in spring 2020 showed that most financial institutions offered loan modifications (95%), waived / reduced fees (90%) and created new loan products to meet people’s needs. needs (86%).
Unfortunately, given the fluid nature of the pandemic, people initially seemed unaware of these options. Research by CUNA Mutual Group in May 2020 found that many clients and members either did not tap into these resources or believed that financial service providers could not or would not provide the support they needed.
Subsequent research in November 2020 uncovered information on how consumer awareness and attitudes towards financial protection opportunities had changed since the pandemic began earlier in the year.
Main financial concerns: bills, job / income security and retirement
When asked to provide an open-ended response to the question “What’s your biggest financial worry right now?” 18% of respondents place the ability to pay their bills at the top of the list, followed by job / income security and retirement, closely followed by a variety of other finance-related topics.
Additionally, nearly half (49%) of people were concerned about their ability to pay their bills over the next 90 days – a level that was roughly stable throughout the year according to previous research. mutual CUNA conducted in May and August 2020.
More financial worries are the main fears related to Covid
In November 2020, several financial issues (retirement, money and economy / scholarship / government programs) were identified as more concerning than Covid-19 for the first time in 2020.
Growing appeal of financial protection insurance
As consumers faced the new financial realities created by Covid-19, they became increasingly interested in protection on a new loan. In fact, research conducted in May, August and November 2020 showed that consumer interest rose from 69% to 76%.
It is also important to note that, along with their growing interest, people’s perceptions of financial protection have become positive. Over half (53%) of consumers viewed financial protection insurance as “good financial planning,” a sentiment that grew steadily over the year.
Consumer stress and consumer loyalty
Research over the past few years has provided insight into the impact of anxiety on banking relationships. CUNA Mutual Group research from 2020 showed the importance of addressing the financial anxiety of customers and members: When asked to rank their customer service experience (CX), non-anxious consumers were more likely to give their primary financial institution (PFI) higher ratings than the anxious.
Research has also shown that the high anxiety / low customer experience relationship exists between product types.
Opportunity for Financial Institutions: Alleviate Anxiety, Deepen Relationships, Grow Business
As the effects of the pandemic are likely to be felt for the foreseeable future, the stress of financial uncertainty will continue to impact people. However, these challenges present an opportunity for banks and credit unions to step up their game. Here are some strategies to consider:
- Make protection products available to consumers: The best options provide essential peace of mind for vulnerable consumers and can help improve relationships between individuals and financial institutions. As a secondary benefit, protection products can generate non-interest income.
- Use a multi-channel approach to educate consumers about their protection options – before a loan event: Most protection products are linked to a loan; the average customer or member probably doesn’t know they exist. People tend to need limited exposure to understand the benefits of the product, and actively promoting protection offers – outside of a loan event – could increase the bank provider’s loan portfolio. Consumers who had not applied for a loan before because they feared they might encounter one of the issues the products protect against might reconsider their decision.
- Ensure staff understand how protective products benefit consumers: Employees of banks and credit unions are outstanding advocates for customers and members, and are naturally wary of products that do not offer clear benefits to consumers. Make sure staff at all levels are familiar with the benefits of protection products and are trained to have consultative conversations with people, especially during the lending process.
The economic uncertainty induced by the pandemic has increased stress levels for consumers. But these difficult times also open our eyes to the availability and value of financial protection. If you aren’t already doing so, now is a great time to educate your clients and members about the many ways your financial institution can help them protect their financial well-being. They will feel more secure and you will build deeper relationships and ultimately grow your lending business.