FCA warns insurers about support provided to struggling customers
The Financial Conduct Authority (“FCA”) have warned Home and motor insurers that they must improve their treatment of vulnerable customers and how they handle customers claims.
The regulator saw an increase in complaints about insurance claims and discovered examples of lengthy complaints handling times and customers not given appropriate settlements. The regulator uncovered instances of motor insurance customers being offered a price lower than their car’s fair market value after it had been written off, which is in contradiction of the FCA’s rules. The FCA have already ensured that relevant firms have been told to put these wrongs right and provide redress to affected customers.
The FCA undertook a review of the complaints received and found that some firms were unable to show they were monitoring customer outcomes appropriately and that firms needed to improve information sharing where insurers dealt with intermediaries to settle claims.
The FCA also found that some firms had failed to show they were adequately able to identify vulnerable customers in need of additional support.
The FCA is taking enforcement action against firms who have broken its rules and has encouraged customers to contact their insurance company to complain if their claims have been delayed or they’re not happy with how their claims are being handled. Consumer can also raise a complaint with the Financial Ombudsman Service if they are not satisfied with the firm’s response.
As part of their review, the FCA also found examples of good practice, including:
- Firms providing greater forbearance, waiving fees or excesses, offering payment holidays and setting up customer support hubs
- Dedicated website sections to help support vulnerable customers, both financial and non-financial
- The use of voice analytics and specialist training to help identify vulnerable customers.
Alongside the review, the FCA has finalised new guidance for insurance firms about how they should support their customers, providing further clarity to firms about what they should do if they identify customers who are in financial difficulty. The guidance is aimed at firms who support customers with products in the general insurance market, especially those that provide or distribute motor and buildings & contents policies. The Regulator has also consulted on strengthening protections for borrowers in financial difficulty (including for premium finance).
The FCA’s actions are part of its strategy to deliver good outcomes for consumers and its push to see higher standards across the UK’s financial services sector. In December 2022, the FCA issued a questionnaire to a selection of the largest general insurance firms to assess whether they were meeting the expectations that the FCA set out in their Dear CEO letter sent to firms at the end of September 2022.
The FCA assessed firms against 3 key expectations outlined in their Dear CEO letter to understand how firms were:
- providing appropriate support to customers in financial difficulty
- ensuring consumers get access to fair value products
- ensuring claims are handled promptly and fairly
The found that cancellations due to non-payment of premiums were low and stable. Furthermore, the proportion of policies paid by monthly instalments and the average total excess levels were also ‘broadly static’.
However, the FCA found that premiums are increasing which is further impacting consumers already struggling with the cost of living. Whilst this adjustment of premiums is linked to UK motor and home insurers being expected to make losses in 2022 and 2023, the FCA’s Financial Lives Survey found that consumers who were female, younger, unemployed, working in the gig economy, renters, or in an ethnic minority group, were more likely to have low financial resilience which means that premium increases can have a disproportionate impact on these consumers creating further vulnerability.
The FCA further identified issues around claims handling and the identification and recording of potentially vulnerable customers across firms.
The FCA found that a number of firms were unable to provide data to demonstrate the number of vulnerable customers receiving support. The FCA saw a significant variation in how firms identified financially vulnerable customers and saw examples where policies were sold through chains of firms, where it was not clear how each firm had considered their own approach to vulnerability. This is one of the key concerns which is addresses under the FCA’s Consumer Duty.
The Regulatory observed that the time taken to assess claims varied considerably and there were examples where the time taken to resolve a claim was significant. This can be linked to the volume of complaints relating to claims handling and the number of rejected claims which the FCA noted has increased.
Some firms indicated to the Regulator that they has seen an increase in fraudulent/exaggerated claims and anticipated that this trend may increase over the coming year.
A key concern with in the FCA’s review was that some firms were not yet able to demonstrate that they have effective information to monitor consumer outcomes. The Regulator noted that more work was needed to ensure good flows of information between intermediaries and manufacturers.
Firms must consider these examples in the context of the new Consumer Duty which comes into force at the end of this month. An anonymous survey of 1,230 firms commissioned by the FCA found that just 64% of firms surveyed said they would be fully compliant by the deadline, with 23% saying that they would comply with most requirements by the deadline but would still have some work to do and 7% of firms surveyed said they would still have significant work to do after the deadline or had not started work on the Duty. The FCA warned that ALL firms need to make the most of the time before the 31 July implementation deadline.
