![Logo[1].jpg](https://static.wixstatic.com/media/94cd04_f19ec68826ff46fe9ef76eb000435b8e~mv2.jpg/v1/fill/w_238,h_121,al_c,q_80,usm_0.66_1.00_0.01,enc_auto/Logo%5B1%5D.jpg)
FCA Review: Insurance firms' compliance with Consumer Duty explained
Another month, another review of consumer duty compliance. The 26th June publication set out the Financial Conduct Authority’s findings, in particular that many insurance firms need to make improvements in outcomes monitoring to more clearly identify whether they are meeting their obligations. Undoubtedly required reading for insurance firms, there are key takeaways that are useful for all firms here too.
The regulator reviewed recent board and committee reporting from 20 larger insurance firms, with the aim of understanding how firms monitor, assess and test the outcomes that customers are receiving. They also wanted to know how firms act after they have identified poor outcomes. While some of the details are specific to insurance firms, the general findings have implications for all firms, and are especially useful as guidelines when conducting reviews.
RELATED ARTICLES:
RELATED RESOURCES:
Approaches focused on processes being completed, rather than on outcomes
By this, the FCA means that the framework used to ostensibly monitor outcomes shouldn’t be more important than the outcomes themselves; the Consumer Duty is designed to prevent tick-box methods. Poor practice included being reliant on metrics. For example, firm data confirmed the number of product reviews completed and this was used in and of itself to evidence compliance, but the FCA is saying this is stopping short: “completion of a document review alone does not provide assurance that customers are equipped with the right information to make effective, timely and properly informed decisions.” Instead, firms should use data that is clearly mapped against the four Duty outcomes, and use that data to analyse the outcomes, understand whether the outcomes are poor or good (and why), and the significance and type of any poor outcomes.”
Few firms were able to provide clear evidence of where the monitoring of outcomes had directly led to proactive action being taken to improve these outcomes, where necessary
While most firms could point to some improvements, some could not provide any examples of actions taken as a direct response to poor outcomes identified. This included not being able to show how they monitored whether implemented changes, e.g. to a communications process, actually improved customer outcomes. Understanding the changes that need to be made and implementing those changes are critical, but so is testing the impact of those changes.
To catch poor outcomes in the first place, using a wide range of data and analysing outliers was highlighted by the FCA as ‘good practice’ to identify where improved outcomes may be delivered.
Some board or committee reporting contained limited insight into actual customer outcomes, often because metrics/data were not comprehensive enough, or data lacked analysis or threshold/standards did not appear to be appropriately set or communicated
Highlighted as poor practice was ‘repackaging’ existing data, with limited consideration of gaps, or of the outcomes that were to be monitored. The danger here is the risk of “not thinking deeply or afresh about the types and granularity of data.” The FCA clarified that while they would expect firms to make use of existing data capabilities, they also need to consider whether the data is sufficient for customer outcome monitoring. Good practice included a review of whether additional data will help gain further insight, which the regulator said usually led to a more varied and holistic mix of data types.
Analysis failings were found where numbers were presented with limited narrative to interpret the data, no other context (e.g. the number of complaints without total customer numbers or trend information), arbitrary targets, tolerances set at a level the firm was unlikely to breach, RAG threshold giving continuous ‘Green’ ratings even where there is a negative trend, and thresholds that had been reduced without justification.
Also highlighted was the finding that firms were not found to be monitoring the outcomes experienced by “distinct groups of customers.” The FCA reiterates that it expects monitoring to identify whether distinct groups of customers – particularly vulnerable customers – experience worse outcomes than other customers for the same product. The regulator notes that it did see some monitoring of different groups (e.g. age groups) and evidence of further analysis or action being taken. For vulnerable customers, at the most basic level the FCA expects firms to monitor whether they are meeting and responding to the needs of customers, making improvements where this is not happening, and producing and reviewing management information on the outcomes they are actually delivering. Firms must also be able to provide the FCA with the information they are using to monitor whether they are achieving outcomes for vulnerable customers that are as good as those for other customers.
On all firms’ radars should be the current review of delivery of good outcomes for all customers, including those with characteristics of vulnerability. Started in March, the findings will be shared by the end of 2024. The review will look at firms’ understanding of consumer needs, communications and customer service, and the skills and capabilities of staff.
Getting staff up to speed with the background of the Duty, understanding good customer outcomes and how to support them and providing them with the range of skills they need to offer that support in practice – particularly to vulnerable customers – is a great starting point.
Our Consumer Duty course, priced at just £20 a head, takes staff through the basics, explaining how the Duty works, what it expects and what it will mean for them.
Our popular range of Consumer Duty compliance resources – including webinars and downloadable content including product review templates – are available to browse and buy here.
Comments