The Covid-driven furloughs, layoffs and general economic uncertainty have left consumers understandably anxious about their finances. Research conducted by CUNA Mutual Group both before and after the pandemic began indicates that, as stress continues to build, there is growing consumer awareness of and interest in financial protection.
Consumer Sentiment Pre-Pandemic
In late 2019, CUNA Mutual Group researched consumers’ knowledge around financial protection products (Understanding Preferences for Loan Related Decision Making). This pre-pandemic study indicated that both people’s awareness of financial protection and their likelihood to purchase were low.
Limited Consumer Awareness
Of those with a recent loan, less than half (48%) of respondents were “very” or “somewhat” familiar with financial protection options and 27% said they weren’t familiar at all. Of those who were looking/planning to get a loan, 37% were “very” or “somewhat” familiar, but nearly as many (30%) were unaware.
Drivers of Interest in Financial Protection
Those who saw potential value in financial protection tended to:
- Prioritize safety
- Have more valuable vehicles or bigger loans
- Have previous experience
- Be more likely to value insurance
- Be more likely to have had the product offered during the loan process or were required to purchase protection to get their loan.
Those who purchased or intended to purchase financial protection felt they were getting value for their money, liked the idea of protection and/or expected future uncertainty. Those who hadn’t chosen protection on a recent loan or didn’t intend to get it on a future one thought it was too expensive, didn’t see a need or weren’t offered the product.
Consumers with Loan Payment Worries Had Similar Concerns
Even pre-pandemic, people who were concerned about their ability to make loan payments — whether they already had a loan or were looking for one — had the same two concerns: unexpected costs and changes in their lives.
How has the Covid-19 pandemic affected consumer sentiment in terms of their financial well-being and financial protection? Let’s take a look.
Pandemic Drove Increased Consumer Anxiety
As the pandemic began to sweep the country in late first quarter 2020, U.S. consumers were understandably anxious about their jobs, livelihoods and finances.
Low Awareness of Early Bank and Credit Union Efforts
Traditional financial institutions attempted to address growing consumer needs and anxiety by quickly enhancing products and services. A survey conducted by CUNA and the AACUL (American Association of Credit Union Leagues) in the spring of 2020 showed most financial institutions were offering loan modifications (95%), waived/reduced fees (90%) and created new loan products to meet people’s needs (86%).
Unfortunately, given the fluid nature of the pandemic, people initially appeared to have little awareness of these options. CUNA Mutual Group research in May 2020 found that many customer and members either weren’t tapping into these resources or believed financial service providers either couldn’t or wouldn’t deliver the assistance they needed.
Subsequent research in November 2020 revealed insights into how consumer awareness of, and attitudes toward, financial protection opportunities had shifted since the pandemic began earlier in the year.
Top Financial Concerns: Bills, Job/Income Security and Retirement
When asked to provide an open-ended answer to the question “What is your biggest financial worry right now?” 18% of respondents put the ability to pay their bills at the top of the list, followed by job/income security and retirement, with a variety of other finance-related topics following close behind.
In addition, nearly half (49%) of people worried about their ability to pay their bills over the next 90 days — a level that’s been roughly stable throughout the year according to earlier CUNA Mutual Research conducted in May and August of 2020.
More Financial Worries Top Covid-Related Fears
As of November 2020, several financial issues (retirement, money and the economy/stock market/government programs) were identified as greater concerns than Covid-19 for the first time in 2020.
Growing Appeal of Financial Protection Insurance
As consumers dealt with new financial realities created by Covid-19, they became increasingly interested in protection on a new loan. In fact, the research conducted in May, August and November 2020 showed consumer interest growing from 69% to 76%.
It’s also important to note that, along with their growing interest, people’s perception of financial protection had turned positive. More than half (53%) of consumers saw financial protection insurance as “good financial planning,” a sentiment that had increased steadily over the year.
Consumer Stress and Consumer Loyalty
Research over the past few years provided insights into the impact of anxiety on banking relationships. CUNA Mutual Group research from 2020 showed the importance of addressing customer and member financial anxiety: When asked to rank their customer service (CX) experience, non-anxious consumers were more likely to give their primary financial institution (PFI) higher ratings than anxious ones.
The research also showed that the high anxiety/low customer experience relationship existed across product types.
Opportunity for Financial Institutions: Ease 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 strategies to consider:
- Make protection products available to consumers: The best options offer critical peace of mind to vulnerable consumers and can help improve people/financial institution relationships. As a side benefit, protection products can generate non-interest income.
- Use a multi-channel approach to inform consumers of their protection options — before a loan event: Most protection products are tied 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 offerings — outside a loan event — could boost the banking provider loan portfolio. Consumers who hadn’t previously applied for a loan because they feared encountering one of the problems the products protect against, might reconsider.
- Ensure staff understand how protection products benefit consumers: Bank and credit union staff are exceptional customer and member advocates and understandably leery of products that don’t offer clear consumer benefits. Ensure staff at all levels are well versed in protection product benefits and trained to have consultative conversations with people, especially during the lending process.
The pandemic-induced economic uncertainty has raised stress levels for consumers. But these trying times are also opening their eyes to the availability and value of financial protection. If you’re not already doing so, now is the perfect time to educate your customers and members on the many ways your financial institution can help them protect their financial well-being. They’ll feel more secure and you’ll build deeper relationships, and ultimately grow your lending business.