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Is doing your duty to consumers really so hard?

By: Toby Finden-Crofts


Anxiety levels at insurers and banks are starting to rise as the consultation period on the Financial Conduct Authority’s proposed new “consumer duty”, judged on outcomes for the customer.

In essence, the new rules are rather like a game of poker where the FCA says “I’ll see your Treating Customer Customers Fairly and raise you a Consumer Duty”.

The FCA says while many firms deliver the right outcomes for consumers, they should ask themselves if they would be happy to be treated in the same way they treat their customers.

Sheldon Mills, executive director of consumers and competition at the FCA told a recent webinar audience: “We know that consumers don’t always get the products and services that meet their needs, or the outcomes they might reasonably expect and that’s because of the way that financial services markets might operate”.

Its proposals look innocuous enough as they say “a firm must act in the best interests of retail clients”. But it is the coupling of this with the proposal that consumers might be given new legal rights to challenge outcomes that has started the alarm bells ringing. This is hardly surprising when you consider the exposure insurance companies have had to greedy claims management companies in the past.

With those companies now regulated by the FCA, one must hope that they will face the same tests. Many would fail to justify the 25% plus slice of legitimate compensation that frequently grab for themselves for doing very little work.

Put that understandable fear of being thrown to the claim management company wolves aside, and take a look at what some insurers are saying as they start to line up to block the new customer duty regime. It doesn’t make happy reading.

One leading law firm that represents insurers has argued it could leave many insurers asking how they can judge whether they are acting in their customers’ best interest when they know so little about them. This, suggests the lawyers, could lead to products being withdrawn and vulnerable customers shunned. Really? Are these really serious arguments?

In this era of big data and artificial intelligence what excuse is there for not knowing enough about your customers to know that you are selling them the right products and delivering them the right outcomes when they make claims?

There is huge pressure on the FCA and the financial services sector to get tougher on consumer protection following recent scandals such as the London Capital and Finance mini bonds fiasco where investors were left seriously out of pocket. Although the consumer duty proposals are – at the moment – aimed at retail consumers, the insurance industry’s performance over business interruption claims in the face to the Covid pandemic has not won it many friends, least of all at the FCA. Arguing that it does not know enough about its customers is not going to wash.

Claims is the acid test of insurance. The growing awareness among consumers, policymakers and regulators that the industry’s performance at this moment of truth is often flawed should make the industry very wary of protesting too much. The potential PR disaster looming of trying too hard to construct an argument against what the FCA is seeking to do, which in Mills’ words seems very simple: “We want firms to be putting themselves in the shoes of consumers and asking: Would I be happy to be treated in the way I treat customers?”, hardly bears thinking about.

Surely, if the fear is that not enough is known about customers to answer that question, the answer is to find out more about them and what they expect in terms of service and outcomes? If established insurance providers cannot do this there is a gathering legion of insurtech disruptors waiting to step into the breach.

The FCA’s consultation on the proposed consumer duty is open until the end of the month https://www.fca.org.uk/publications/consultation-papers/cp21-13-new-consumer-duty

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