As we approach spring, the July 31st implementation date for the Financial Conduct Authority's (FCA) Consumer Duty draws near. In these crucial few months leading up to implementation of phase one, harnessing the Duty’s obligations and doing so openly can draw an important distinction between an insurer and their competitors.
In our last blog, Cage of Reason: FCA's Consumer Duty heralds the rise of the 'Reasonable Insurer' we discussed what the new regulations meant for the insurance sector. Here, we grasp the mettle of this impending change and discuss how the Duty is good for insurers, and consumers alike.
Some have reservations, contesting the new Duty is burdensome, only resulting in increased costs and a narrowing of sales opportunities. However, insurance providers know that caring for customers is good for business, and have already constructed their processes around that.
At the most fundamental level, the Duty hoists a new, twelfth principle: "A firm must act to deliver good outcomes for retail customers." (PRIN 2.1) Under which, a set of behaviours are defined for the insurer to exhibit, alongside expected outcomes for the customer. By actively embracing these behaviours and outcomes, insurers can gain that vital edge on competitors.
GOOD BEHAVIOURS AND GOOD OUTCOMES
The Consumer Duty hinges on insurance companies actively adopting defined behaviours (called cross-cutting rules) and ensuring high-quality outcomes for its customers. The behaviours revolve around acting in good faith, avoiding foreseeable harm to insureds, and urge compliant insurers to: "enable and support retail customers to pursue their financial objectives". These behaviours are intrinsically entwined with the Duty's outcomes which "consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met." (PS22/9)
The FCA’s effort to humanise the interaction between insurers and customers, while ensuring that a financial product implicitly meets the financial need of those who purchase it, is of obvious benefit for customers. In the past, not all products had a clearly defined purpose, or the outcome for the purchaser proved ambiguous. However, the clarity of purpose (under the Duty) for a product is of equal benefit to insurers. Customers who are confident in the product and in the expected outcome are more likely to buy a new product or renew an existing one, plus it can reduce handling of problems or complaints. While everyday people might not be aware of the Duty, an insurer who informs their customers of the Duty and commits to fulfilling, or reaching beyond it, can only add appeal to their products and services.
Initially, these behaviours and outcomes may appear nebulous. However, our insurer clients find that the building blocks for much of these new requirements are already in place. This is partly due to compliance with existing regulation, including acting in the best interests of customers, treating the customer fairly, supporting vulnerable customers, and ensuring products meet the needs of customers. As previously mentioned, caring for customers is good business, and insurers have already constructed processes around that.
COMPETITIVE DISTINCTION
The impending phase one of the Duty encompasses new and existing products on sale or up for renewal. A year later, at the end of July 2024, the Duty proceeds to phase two, bringing closed products into scope. Many insurers already have implementation plans in motion, with the necessary changes planned or underway. Though openly harnessing obligations can help draw a competitive distinction.
The Consumer Duty is complex and wide-ranging, but those who view the Duty as an opportunity rather than a duty, will find the greater success.
We help our clients analyse and deliver effective digital solutions to meet or exceed expected customer outcomes. Adaptive digitisation is essential where process or communication improvements are rapidly required. And as evidencing compliance is essential, so is effective information capture and data management. Clients turn to us to support the operational and cultural reshaping needed to accomplish effective change.