On 26th June 2024, the Financial Conduct Authority (FCA) published the findings of a review it had carried out on how insurance firms monitor, assess and test the outcomes their customers receive under the Consumer Duty (the “Duty”). This is crucial for firms to ensure they meet their obligations under the Duty.
The FCA found that the monitoring was often process-driven rather than outcomes-focused and whilst some insurers could evidence a clear and comprehensive monitoring approach followed across the firm, other firms needed to make improvements to their processes in order to achieve the outcomes of the Duty.
The information gathered by the FCA was compared against the requirements set out in PRIN 2A.9 and in the guidance set out in FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty. The findings enabled the FCA to provide examples of good and poor practices that it had observed and from which other firms are expected to learn. These are set out below.
Monitoring approach and data collection
Good practice included:
- Comprehensive suite of metrics
- Clear approach to identifying foreseeable harm, e.g., by documenting a range of key foreseeable harms, hence making better decisions on what data is required to monitor outcomes to avoid these harms
- A range of outcomes-driven data
- Frameworks developed to test customer outcomes
- Clearly articulated and scrutinised tolerances
- Integration of second-line challenge, including challenges on the type, granularity and interpretation of data being used, and the thresholds applied
- Monitoring outcomes of different customer groups, including those with characteristics of vulnerability
- A wide range of data to identify outliers, conduct analysis and take action
Poor practice included:
- Reliance on monitoring process completion rather than customer outcomes, e.g., reliance on metrics without analysis of key findings
- Lack of monitoring of claim settlements – there was analysis of the timeliness of claims and percentage of declined claims but little evidence of whether good outcomes were achieved
- Repackaging existing data
- Data unlikely to facilitate scrutiny or challenge
- Outcome monitoring data that does not differentiate by customer group or characteristics of vulnerability
- Limited evidence of evaluating the impact of changes
Consumer Duty Outcomes
Good practice included:
- A wide range of metrics for products and services, price and value, customer understanding and customer support, giving better insights and being more likely to drive better outcomes
- New approaches developed to monitor customer understanding, including thinking about when and how to communicate with a customer and redesigning the customer journey rather than merely adapting what is being communicated
- Mapping of customer journeys to monitor customer outcomes
Poor practice included:
- Products and services: Overreliance on process completion rather than outcomes achieved, e.g., assuming that good outcomes were being achieved simply because reviews had completed or that no material findings were identified
- Price and value: Price standards or tolerances that are not meaningful (e.g. loss ratio tolerances being set at the same level for different products despite the actual loss ratios being very different) and undue reliance on complaints data (the FCA felt that some firms were reliant on customers for driving their assessment of fair value when it is the firms’ responsibility to assess this)
- Customer understanding: Reliance on one type of data (e.g. net promoter scores) and on monitoring process completion rather than customer outcomes
The FCA has advised that all insurers, insurance intermediaries and outsourced service providers operating within the insurance sector should consider these findings, including the good and poor practice observations, while retail financial services firms in other sectors may also find these observations useful.
The findings should be used when firms are considering approaches to monitoring outcomes on closed products, as required from 31st July 2024. Firms can also use these findings to support them in the development of their first Consumer Duty annual report, due by 31st July 2024.
How can Complyport help?
This publication reflects the FCA’s push for insurance firms to improve their approach to monitoring client outcomes to ensure compliance with the Consumer Duty. Complyport can help firms in complying with the FCA’s expectations by providing a range of services, including:
- Regulatory Guidance: We can help your firm understand the FCA’s expectations and provide expert advice on the relevant regulatory requirements.
- Consumer Duty: Our Consumer Duty Readiness Assessment as well as our Consumer Duty Policies and Papers and the Consumer Duty monitoring questionnaire are a few of the ways we can assist your firm in implementing the Consumer Duty rules (Principle 12) within both the processes and the spirit of your business.
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