The new FCA Consumer Duty comes into effect for insurers, MGAs and brokers from today. What will the impact be? IE rounded up some industry comments FYI;
Nicola Dryden, Chief Client Officer, Sedgwick UK, shares her views on what the new regulation means for the insurance sector:
“We welcome Consumer Duty as it puts customers at the heart of everything insurers do, setting higher and clearer standards for consumer protection. From today, insurers must ensure they can robustly evidence their continued commitment to customers by using feedback, data and management information.
“As ever, with change comes opportunity. As the biggest shift in financial services regulation in recent years, the Duty is an excellent opportunity for insurers to focus on further enhancing customer journeys. Furthermore, firms will now have a laser focus on looking at everything through the lens of the customer, making sure they offer policies and ongoing support that is best suited to individual needs.
“For loss adjusters like Sedgwick, the Duty presents an opportunity to collaborate with our insurer partners even more closely to ensure better, more bespoke service, greater transparency and the right outcomes for customers. We look forward to seeing how the Duty ensures that customers’ needs are always put first.”
Jonathan Barrett, CEO and Co-Founder at reg tech provider, Comentis comments on the Consumer Duty deadline which has come into force today (31st July 2023)
“Customer vulnerability is the thread that runs through all aspects of the Duty. Now is the time for firms to sit up and make sure they are supporting their vulnerable clients.
Any business which offers credit to pay for their goods and services is going to be affected. Therefore, whether a consumer is buying a car, a pair of glasses or a sofa, if the consumer takes a credit agreement, the firm the consumer purchases from will need to understand if that customer is vulnerable under FCA definition. This poses a massive challenge for industries that have previously passed on such responsibility to a credit provider. Consumer Duty now needs to be adopted across the whole distribution chain.” “Development is crucial, when trying to determine where we go next with Consumer Duty. The entire point is that supporting vulnerable customers is something we’ll work on and improve at over time. So, what the FCA wants to see today isn’t necessarily that everyone has every single base undeniably covered. What it really wants is to see that we’re all in the race.”
“The deadline today should be seen as the firing of a starting pistol, marking the beginning of a broader conversation, and understanding on vulnerability. While some might have been looking forward to putting Consumer Duty behind them this summer, the reality is that the topic of vulnerability is here to stay. Over time, as we develop our understanding, the outcomes we deliver for vulnerable customers will start to gradually improve. But we shouldn’t expect an overnight transformation. We’ll be in escalation for years. As such, and given Consumer Duty is really about continuous improvement, then once this deadline has passed the goal should be for firms to look at the measures they’ve put in place so far and ask how they can go a step further.”
Consider that for years the protection market has been led by advisers, and now, a growing set of non-advised service providers. The market has commoditised, and sales are price-led. Consequently, the individual protection space is dominated by a few very large players, and the sale itself is typically linked with a life event, most often a house purchase.
However, as the life of the insured changes, the coverage bears little resemblance to current needs. This is because protection has always been a ‘fire and forget’ sale for many advisers. You sell it, take a decent upfront commission with a much smaller “trail” or annuity commission and move on to the next one.
In short, even people who think they have cover in place are likely woefully underinsured. Under Consumer Duty, ‘fire and forget’ will be unacceptable as the suitability of a protection product must be checked more regularly. That’s what makes it a game-changer.
The challenge is to ensure this additional requirement can be met in an efficient manner without driving up premiums significantly. If a provider/adviser can easily track how a client’s protection cover “maps” to their potential exposure, they can, in theory, present an evolving policy that aligns with it.
But it has to be economical, and that’s where technology comes in. If permission under GDPR etc., can be obtained, and an exchange of value established, data can be shared securely and safely and acted upon. Propositions like Moneyhub are real enablers here. They offer a huge array of open banking/finance links that paint a clear picture of an individual’s financial exposure, and with permissions, and critically, an appropriate compliance approach, “triggers” from this data could be acted on.”
“What if insurers could send a message to the policyholder after a life-changing event asking if they are okay and need any support? Whether that be a premium holiday, an updated policy or just some advice. Think of the impact that would have on the relationship between the insurer and the insured. Especially at a time when consumer trust scores are so low.
Now, consider a situation where premiums for a life policy stop being paid halfway through the term. Back payments lapse so the policy cancels.
In this new world, the insurer has an automated workflow that polls the Government death register, confirms that indeed the policyholder has deceased; and automatically reaches out proactively to the beneficiaries to offer sympathies and advise them that a legitimate claim could be made. Think how that one case alone would change an individual’s perception of life insurance in a heartbeat. Yes, the likelihood is premiums would have to be higher but people wouldn’t be buying on price. It would be a value-based sale.
The data and technology to do this kind of thing is absolutely there. But for most insurers, their ageing technology prevents them from a) accessing it, b) trusting it, and c) being able to actually do anything with it.The key for insurers is automation. If these nudges, particularly for legitimate upsell and cross-sell can be automated, there is huge potential for premium growth and direct relationships with consumers. Moreover, it serves to close that protection gap and serve consumer interests better.”
Nikhil Rathi, CEO at the FCA recently made a speech on AI and its use across financial services. In that he touched on the new Consumer Duty;
“The Consumer Duty, coming into force this month, stipulates that firms must design products and services that aim to secure good consumer outcomes. And they have to demonstrate how all parts of their supply chain – from sales to after sales and distribution and digital infrastructure – deliver these.
The Senior Managers & Certification Regime also gives us a clear framework to respond to innovations in AI. This makes clear that senior managers are ultimately accountable for the activities of the firm.
There have recently been suggestions in Parliament that there should be a bespoke SMCR-type regime for the most senior individuals managing AI systems, individuals who may not typically have performed roles subject to regulatory scrutiny but who will now be increasingly central to firms’ decision-making and the safety of markets. This will be an important part of the future regulatory debate.
We will remain super vigilant on how firms mitigate cyber-risks and fraud given the likelihood that these will rise.”
Over on LinkedIn there is a dedicated group for Consumer Duty discussion and advice, which could be very useful for many brands in terms of sharing knowledge in the future. You can also read up on the final rules published by the FCA on their site here.