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Vulnerability is not fixed in time

By: Karen Scott


We have highlighted in this blog before the oversights in the Financial Conduct Authority’s approach to vulnerable customers when it comes to general insurance, and claims in particular (November 2021).

Those omissions seem more glaring as every batch of economic data is released.

The FCA’s guidance was published in February 2021 and rather optimistically entitled Finalised Guidance for firms on the fair treatment of vulnerable customers (FG21/1). “Finalised” seems very hopeful in retrospect. Inflation was pegged at just 0.7% when that document was issued: now it is at 7% and still rising. That alone is a gamechanger when it comes to customer vulnerability and would more than justify the FCA re-visiting its advice.

Stories of families turning food banks in increasing numbers, switching off heating and cancelling subscriptions to streaming services are crowding into the headlines and are a stark reminder that once financially secure customers might now be vulnerable. Those with long memories in the industry will know that letting insurance policies lapse or nor taking out cover, especially for household, travel and personal possessions such as mobile phones, are early casualties in a cost of living crisis.

It will also hit insurers hard when it comes to claims costs. White goods – so often replaced in household insurance claims – have jumped in price by 30%. Vehicle repair costs are rising fast as spare parts are caught in endless supply chain disruptions – over 500 container ships are marooned outside Shanghai alone as China’s zero tolerance policy toward Covid outbreaks creates havoc. Furniture prices are now set to start rising rapidly as timber shortages caused by the war in Ukraine start to impact. The list gets longer by the day.

Insurers will be looking to keep a tight grip on costs just at a time when customers need to be cared for more than ever. Automated processes, driven by artificial intelligence, clearly have a place and are already an essential ingredient in interactions with customers. But how attuned are they to vulnerability? Do they rely on people having the latest smart phone to access services, especially lodging claims? How will that play out when people delay upgrading phones in order to save money? Could people be left behind and disenfranchised if ever more sophisticated apps can be accessed by only a diminishing proportion of customers?

When it comes to business insurances, we know from experience that firms under pressure cut corners with maintenance and staffing levels, making claims more likely. Fraudulent claims also rise as desperate businesses look to insurance payouts to ease cash flow crises.

This is a potentially potent mix.

The FCA has not shown any desire to extend its advice on vulnerable customers to focus on the specific challenges general insurers face. It has also been silent on how vulnerability might be changing as the UK economy is buffeted by world events, tax rises and economic uncertainty.

The insurance industry is going to have to look to itself to ensure is rises to this challenge and looks after its customers, offers them appropriate and sensitive advice and support at policy inception and at the claims stage, the ultimate test of any insurance policy.

We all know that unflattering, hostile headlines await if the industry gets this wrong.

Karen Scott

Karen is a very experienced insight manager having worked for more than 20 years client side across numerous industries undertaking market research projects (both qualitative and quantitative) as well as competitor and market intelligence. She has also facilitated many strategic workshops designed to tease out insights to inform company decision-making and product development plans. Karen joined Research in Finance recently from Canada Life where she was the Market Research and Insight Manager with responsibilities for research covering Equity Release, Protection, Retirement Income Planning and Wealth Management. Karen is a certified member of the Market Research Society.


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