Reminder: The Duty became effective on July 31st, 2023, applying to both new and existing products and services. For closed book products and services, the Duty will take effect on July 31st, 2024. Insurers must ensure they are on track for compliance by this date.
The introduction of Consumer Duty by the FCA has seen a significant transformation within the Financial Services Industry. This regulatory initiative impacts all financial firms, including insurers, and places a strong emphasis on ensuring “Good Customer Outcomes”. It is an industrial call to action on financial services to continue ensuring positive customer journeys.
Whilst the implementation of the regulation on new and existing products and services has already been met with a dedicated effort by the insurance sector, there are further hurdles on the horizon. A concerted effort needs to be made to meet the July 2024 deadline for closed-book products and services and the most challenging aspect of the regulation remains – the proactive continuation of efforts to ensure fair value for all consumers. As highlighted by the FCA, this is not a once-and-done exercise, but rather a continuous cycle to ensure positive outcomes.
The FCA’s “Dear CEO” letter in Feb 2023 emphasised this as a key priority and already, post implementation of the regulation, insurers are feeling the pressure. A year on, the FCA has reviewed efforts to date; they have acknowledged successes but warned of areas requiring attention. Particular examples pointed to unreasonable delays to claims processing, as well as unreasonable claims settlements. Furthermore, following a recent Guaranteed Asset Protection products assessment, the FCA raised the concern of potentially failing to provide fair value to customers or inadequate levels of cover due to a lack of customer comprehension.
With the FCA committed to continuously monitoring and ensuring appropriate enhancements of capabilities are undertaken, insurers should be mindful not to waver in their efforts for Duty compliance. Continuous enhancement of customer experience will limit FCA intervention and deliver good customer outcomes.
Meaning & Implication of Consumer Duty
The Consumer Duty defines four outcomes in the context of the insurance industry:
- Products and Services: Firms must provide customers with tailored insurance products that align with their needs, avoiding the sale of unnecessary or unsuitable options.
- Price and Value: Consumers should receive fair value in insurance.
- Consumer Understanding: Clear products and timely information for customers to make informed financial decisions.
- Consumer Support: Customers should expect quick and efficient problem resolution, tailored support, and ongoing assistance throughout their relationship with insurers.
There is a natural tendency to focus on the core manufacturing components (providing tailored products/services with fair pricing) to provide positive outcomes. However, if the entire customer journey is considered (including the customer knowledge gap and support accessibility) a truly consumer-centric approach is formed, aligning fully with the spirit of the Duty. Efforts to further enhance manufacturing capability always continue to be worthwhile, but these should not be at the expense of a heightened focus on improving consumer support. There needs to be a rebalance of focus to concentrate efforts on consumer support. A consumer-centric approach is achieved with an optimal customer journey – ensuring customers experience a great level of service, fully comprehend the coverage provided with needs met, are provided fair price and value, and are compensated appropriately and within reasonable timelines when claims are raised.
Step to take for Insurers: How to Act under Consumer Duty
Organisations must be able to demonstrate a culture of consumer-centric approach and precedence of customers in their culture, purpose and behaviours.
Here are some areas for consideration:
Reporting, MI, and Data
For both closed and open book products, collecting sufficient and valid data to generate reporting and MI that demonstrate compliance with consumer duty and highlight areas for improvement.
- Efficient data collection
- Leverage the right tools to continuously enhance data management and analysis capabilities, including systems that allow for more personalized customer interactions and improved data security.
- Consider using AI & ML to leverage value and produce richer insights.
- Ensure that MI and reporting is live to ensure accuracy of assessments and efficiency of actions.
- Use data to fully comprehend the needs of customers.
Understanding key Duty elements and your business:
Develop a working understanding of key elements of the Consumer Duty regulation and how they apply directly in the context of your business.
- Interpret key terms of the Duty correctly in the context of your business and assess the validity of these interpretations regularly (e.g. harm, fair value) .
- Fully understand all interactions of products/ services and customers and their journeys.
Products and Services
Understand fully your product and service offering and their consumers, and continually work towards best practices as per the Duty.
- Consider the cultural and organisational changes that may need to be implemented to achieve Consumer Duty goals.
- Consider your product/service design and how it can best meet the requirements of the Duty.
- Continue to enhance Board-level understanding of the duty with key decisions are customer-centric.
- Consider your product/ service transparency. All information regarding policy terms, conditions, and coverage should be clear to the consumer.
- Benchmarking and comparisons.
Communications
Internal and external communications should be transparent, timely, and focused on providing fair value.
- Consider the transparency of communications – are there mechanisms in place to gather and act on customer feedback.
- Ensure all staff are aware of the responsibilities outlined in the Duty and, where appropriate, provide training
- Ensure that all communications along the distribution chain are transparent, and all parties are aware of their responsibilities under the Duty.
- Enhance customer tools to ensure best customer communications and smooth and efficient claims handling with fair settlements (appropriately evidence that positive outcomes are achieved).
How can Projective Group help?
As the Consumer Duty has become a reality in the financial services landscape, insurers must proactively and continuously improve their offerings and services. For the FCA, under the Consumer Duty, success will be achieved when firms truly understand their customer needs (including vulnerable customers) and demonstrate a proactive culture to continuously improve as well as identify and address issues or gaps to ensure good customer outcomes are met. We at Projective Group have the expertise and industry knowledge to serve as valuable partners in this journey, guiding organizations towards compliance and fostering a culture of positive customer outcomes.
Projective Group prides itself on its track record of supporting clients through large-scale, regulatory directed change. Our clients’ needs are met through maturity assessments and working with internal and external service providers to deliver pragmatic solutions. This ensures outcomes are effective, robust, and sustainable. In the UK, we analyse complex regulations and break them down into tangible outcomes and actions providing value through relieving the burden of the constantly changing regulatory landscape and reporting process.
We have designed and built data models, as the backbone of Operational Resilience; led company-wide programmes to be compliant with regulation such as DORA and GDPR; we continue to manage company-wide AML and KYC services. We provide support to senior stakeholders in shaping organisational change strategy and responding to evolving requirements. Across Insurance and Financial Institutions, we have led complex regulatory response projects through risk assessments, enhancing customer journey, and improving regulatory reporting. If you would like to find out more and discover how Projective Group can empower your business, please contact us here.
