An introduction to the new Consumer Duty

With the FCA expected to publish the final Consumer Duty rules and guidance at the end of July, we’re not far off from seeing and understanding the impact on insurers and brokers. (The implementation date is expected to be April 2023).

We’ve already been through a lot of regulatory change in the past few years (General insurance add-ons market study, introduction of IDD, General insurance distribution chain and GI pricing practices), which leaves the GI market in a good place, however we can’t be complacent as there remains a lot to do.

If there is one critical takeaway from the proposed rules, it’s that you need to be able to evidence that customers are receiving good outcomes.

Put yourself in your customer’s shoes, and put the customer at the heart of your business.
Ask yourself
“Would I recommend my firm’s products and services to my friends and family?” 
“Would I be happy to be treated in the way my firm treats its customers?” 

We can’t give you guidance on how to comply with the upcoming changes, however we can give you an idea of the potential impacts to you and your customers. Once the final position is known, Assurant will communicate details of any requirements and expectations, however this should give you a flavour of what’s on the horizon, and what you may need to prepare for.

What we do know is that there will be a new Consumer Principle, “A firm must act to deliver good outcomes for retail customers”, together with a set of ‘cross cutting’ rules on how firms should act to deliver good outcomes for customers, with key focus on governance for products and services, price and value, consumer understanding and consumer support.

The FCA is expecting a culture shift for firms with the onus of responsibility moving from the customer to the firm.

As an example current rules require “Communications to customers must be clear, fair and not misleading”, whereas under Consumer Duty “Firms need to be able to demonstrate that customers have understood the communications they receive”.

Customers should be given the information they need, at the right time, and it be presented in a way that they can understand and enable them to make properly informed decisions. Firms have the challenge of how they test the customer’s understanding of the products they have been offered or that they have purchased.

The proposals show even more clearly that all parts of the distribution chain need to work together, having the same aims, and resulting in firms needing to:

• fully understand the end to end customer lifecycle and the key touchpoints
• determine what 'good' looks like at each key touchpoint, and if there is foreseeable harm, put in place processes and procedures to prevent harm occurring
• monitor and report on the performance in the customer lifecycle from a customer harm viewpoint
• be able to evidence and demonstrate
  • that the rules/principles are being met
  • the benefits of their products and services are reasonable relative to their price
  • customer vulnerability is understood at each key customer touchpoint

You may wish to ask yourself these questions when considering the new requirements:

• Can I demonstrate that the services I provide add value to the customer?
• Do I fully understand the nature of the product, and the benefits and limitations the customer receives at point of sale, and ongoing
• Am I aware of and have read, the product value assessments provided by each product manufacturer?
• How do I assess whether customers understand the information I have provided to them?
• Do I accommodate the needs of vulnerable customers?

We have a clear picture of where the FCA is heading, there is a lot to think about, and the requirements should be clearer in a couple of months.

If you haven’t already done so, there is no better time to start looking at Consumer Duty and what it means to you - click here.

We will naturally provide you an update once the rules have been published outlining any key points that are important for us all to consider further.