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Do regulators understand vulnerability in a general insurance context?

By: Juan-Mei Banh


Vulnerable customers have been added to the regulatory checklist over the last year but anyone in general insurance – insurer, MGA, broker, loss adjuster – might legitimately question whether the Financial Conduct Authority has even thought about vulnerability in the context of general insurance.

In the 57 pages of its Finalised Guidance for firms on the fair treatment of vulnerable customers (FG21/1) there is no specific mention of general insurance and not a word about claims. Anyone who has worked in general insurance will know that customers are never more vulnerable than when they are faced with having to make a claim.

Throughout the document the emphasis is on product design and the sales process, all relevant to general insurance, but with nothing on the moment of truth for a general insurance policy – testing the promises enshrined in the policy and making that claim.

It is worth reminding ourselves what the FCA means by “vulnerable”.

“Someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”

The “someone” of the FCA definition also includes smaller commercial clients such as SMEs and clubs, although the FCA does not offer any hard definitions of what constitutes an SME, leaving brokers and insurers guessing as to where the boundaries of regulatory intervention might be drawn.

The FCA has identified four key drivers that can lead to customers becoming vulnerable and all of these can be interpreted as applying in a claims situation:

• Health (Physical disability, severe or long-term illness, hearing or visual impairments, mental health condition or disability, addiction, or low mental capacity or cognitive disability)
• Life events (Retirement, bereavement, income shock, relationship breakdown, domestic abuse, and caring responsibilities)
• Resilience (Low or erratic income, over indebtedness, low savings, or low emotional resilience)
• Capability (Low knowledge or confidence in managing finances, poor literacy or numeracy skills, poor English language skills, learning difficulties, poor or non-existent digital skills, or no or low access to help or support)

Many customers who would give no concerns under any of those headings at policy inception can suddenly become extremely vulnerable when disaster strikes. Few people can take a severe incident in their stride – a family forced out of their home for months because of a catastrophic flood or fire, the driver caught up in a fatal road accident or the person severely injured at work. Claims systems and the people who operate them must be attuned to detect vulnerability.

This should make insurers pause a little as they roll out artificial intelligence and highly automated systems in their claims departments. There must be a human intervention too. No AI-driven system will pick up the all the customers that need their hands holding through the claims process, laying aside all the presumptions that were made when they took out their policy.

This means continuously seeking confirmation that the claimant has understood the information provided and how the claims process will proceed. Managing expectations is crucial, especially with those who are more stressed and vulnerable. This is where skilled claims professionals come into their own and will still have a vital role to play.

There is no knowing when – or if – the FCA will extend is vulnerable customer guidance to general insurance and specifically to claims but by raising the wider issue it has served to remind people of the need to ensure all their new systems remain firmly people focussed.

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