Is the new FCA Consumer Duty worded in a way which makes it difficult for brokers to predict their customers’ future, or true aims?
Three in five brokers admit they don’t understand how the FCA’s Consumer Duty will affect their business, according to new research by specialist insurer Ecclesiastical. The survey of 250 brokers also found just over half (53%) are aware of the FCA’s new rules, raising concerns that a significant number of brokers are behind schedule with plans to implement the new rules.
The findings come just weeks after the FCA’s deadline to agree implementation plans (October 31) for one of the biggest regulatory shifts in financial services in recent years. The Consumer Duty introduces a new customer principle for firms to deliver good outcomes for retail customers, underpinned by three cross-cutting rules – firms must act in good faith, avoid causing unforeseeable harm, and support customers to pursue their financial objectives.
IE COMMENT;
These are laudable, if slightly vague, open-ended aims. Let’s say a broker acts in good faith and recommends a particular health insurance plan as the best one. It isn’t the cheapest and the customer believes it offers more wraparound cover than the cheapest product. The consumer then becomes ill and blames the broker for selling a plan which doesn’t pay out critical illness cover, because of a dispute over the specific point at which symtoms first developed or an unknown family history of a particular condition. How is the broker liable for that consumer decision making process and did the broker cause “harm by selling something which the customer believed would offer a guranteed payout, in all circumstances?”
In short the new Consumer Duty places the onus of contractual understanding on the seller, not the buyer. The insurance firm must try to gauge the level of understanding all their customers have, at the point of sale. Obviously impossible in the real world where 1000s of policies may be incepted daily.
One of the key planks of the new rules is this; firms must avoid causing foreseeable harm. How exactly? Set out a lifeplan for the next 50 years, remind policyholders that accidents will happen, at some point, or that smoking, drinking or having sex with lots of people might affect their health? What about the long term danger from an asteroid hitting the planet or sudden death after taking a vaccine? These are all foreseeable events, albeit remote, so will the FCA be dishing out fines if they aren’t mentioned in the sales pitch?
If all this sounds a bit ridiculous it’s because poorly worded regulation leads to poor outcomes. Plus expensive legal test cases.
Here’s one final thought on firms “duty of care” to consumers; about 75% of tenants carry ZERO contents insurance. The correct duty of care to tenants therefore would be passing regulation making 15K worth of contents cover mandatory at the point of lease signing. Any tenant owned pets should carry compulsory pet insurance, to protect landlords and fellow renters. Let’s pass that over to the FCA for immediate implementation, see what happens. It is a foreseeable risk after all..
DEADLINES
By the end of July next year, insurers and intermediaries will need to implement the Consumer Duty for new or existing products open to sale or renewal. The deadline for supported but closed products or services will follow 12 months later.
Ecclesiastical’s research found brokers consider demonstrating they are supporting their customers the biggest challenge in meeting the FCA’s consumer duty requirements (26%), followed by identifying future customer harms (22%). Since brokers cannot predict the future, how can they see and identify future harms?
TOO MANY RULES?
The survey also sought brokers’ views on the broader regulatory landscape. While three-quarters of brokers (75%) agree regulation is vital in achieving better customer outcomes, almost all those surveyed (97%) said the volume of regulation facing brokers is growing every year with 73% agreeing there is too much.
A similar number (67%) said complying with regulation put pressure on their business, echoing the findings of Ecclesiastical’s recent Broker Wellbeing Survey, which found dealing with regulation is the second biggest cause of stress in the workplace, behind heavy workloads.
Adrian Saunders, Commercial Director at Ecclesiastical Insurance, said: “Our research found that brokers, on the whole, believe regulation is a good thing, but there is a lack of awareness and understanding in the market about Consumer Duty. This is one of the biggest regulatory changes in recent years, setting a higher expectation for the standard of care that firms provide to consumers, and for many firms, this will require a significant shift in both culture and behaviour.
“All firms should have an implementation plan in place by now, which should include training to ensure all senior management are aware of the significance of the new Consumer Duty and their role and obligations in terms of ensuring compliance with the new standards. Brokers should also be engaging with their insurer partners and other firms in the distribution chain. As we approach next summer, we’ll hopefully see more brokers supportive of the new regime.”
CONSULTANCY ADVICE
Ecclesiastical has teamed up with consultancy RWA to provide advice and support to brokers about how to prepare for Consumer Duty.
Steve Walton, head of compliance at RWA, said: “The Consumer Duty has been introduced due to falling public confidence in retail financial services. The duty on its own won’t guarantee the delivery of good consumer outcomes. Brokers will need to carefully consider what “good” looks like and what evidence they have to support this. Each firm will need to take appropriate decisions on the work necessary to be ready by the end of July 2023.
“Brokers should, by now, be ensuring customers are given information that they can understand and pointing customers to products, services, and post-sales support that meet their needs and offer fair value.
“There is nothing overly ground-breaking here, however, brokers have a significant amount of work to do ahead of the deadline to be able to suitably evidence that they are delivering good outcomes to their consumers.
“RWA continues to work closely with brokers and have completed a significant number of Consumer Duty gap analyses. A common trend amongst brokers is that there appears to be a lack of suitable evidence and good standard of management information to support the demonstration and delivery of good outcomes for customers.”
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