As part of a series of sector-focused Consumer Duty letters, the FCA has written to firms in the General Insurance and Pure Protection sectors to help them implement and embed the Consumer Duty effectively.
In common with the other letters, the FCA provides general information to remind firms of the implementation timeline and key elements of the Consumer Duty, but also focuses on how it applies specifically to firms in the relevant sectors, the FCA's associated expectations and practical examples of good and poor practice.
The FCA sets the Consumer Duty in the context of three other areas of its work:
- Vulnerable customers: the Consumer Duty is intended to build on the FCA's recent work on vulnerability, requiring firms to consider the diverse needs of their customers at every stage of the product or service lifecycle. Failing to observe the FCA's Guidance on the fair treatment of vulnerable customers (FG21/1) is likely to breach the requirements of the Consumer Duty.
- Cost of living: in light of the cost of living crisis, the FCA refers to its consultation on replacing the insurance aspects of its previous guidance on customers in financial difficulty due to coronavirus with insurance guidance that applies to all customers in financial difficulty. See our blog post on this consultation paper here.
- Appointed representatives (ARs) regime: the FCA explains that its changes to the AR regime which came into force on 8 December 2022 go hand-in-hand with the Consumer Duty and that principal firms should ensure they have appropriate controls in place to effectively oversee their AR's activities and ensure that their ARs comply with the Consumer Duty.
The letter also sets out initial areas for particular focus, grouping its expectations by the relevant Consumer Duty outcome. Significant points include:
- Scepticism from the FCA as to the extent to which firms are currently complying with the PROD 4 value rules for non-investment insurance given the FCA is not aware of any products having been taken off the market due to fair value concerns.
- A warning against a tick-box approach to fair value assessments and an expectation of an analysis (rather than a mere restatement) of data that results in considered commentary and a conclusion as to whether the product provides fair value.
- In relation to the consumer understanding outcome, a demand for firms to apply the same standards to ensure their communications are delivering good consumer outcomes as they do to ensure their communications generate sales and revenues, for example through the use of equivalent testing capabilities.
- A statement that it should be at least as easy to switch or cancel products, leave a service or make changes, as it is to buy the product or service in the first place, and that the quality of customer support post-sale should match the quality pre-sale.
- A focus on claims processes as generally the time a product's value and service are put to the test. Firms should avoid causing foreseeable harm including where claim handling processes cause unreasonable delays or where staff incentives may lead to harmful claims settlement practices.
As with the other sector-specific letters, there is much here that can serve as an additional reference point beyond the materials published to date, and so it warrants careful review. Indeed, the FCA makes clear that the areas highlighted in the letter are likely to be the primary focus of its future supervisory work.
... our review of the implementation plans from a sample of GI and PP firms found that many of them were high-level in nature and lacked sufficient granularity to demonstrate how firms would embed the Duty by the July 2023 deadline.