The Association of British Insurers has added its voice to a call for the financial regulator to loosen the rules around advice and guidance to allow more room to providers to bring innovative solutions to the perceived ‘advice gap’ with mainstream consumers.
For innovation in the advice market to happen, the Financial Conduct Authority needs to re-examine the current distinction between full advice and provision of information, the association’s director general Huw Evans said.
Speaking at the JPMorgan European Insurance Conference, Mr Evans added that this is an issue which requires immediate action if it is to be resolved.
“The advice gap created in the UK by the otherwise laudable RDR reforms has become an even more acute problem with the introduction of the chancellor’s freedom and choice changes [retirement freedoms],” he stated.
He continued that a range of players in the market would like to serve customers seeking advisory help that went further than Pension Wise.
“But for innovation in the market to happen, we need the FCA to re-examine whether the current distinction between full advice and provision of information offers the optimal solution for customers.
“We don’t accept this is a medium-term issue, it is a now issue and it requires leadership from our regulators if it is to be resolved,” added Mr Evans.
He continued that the ABI is committed to working with the FCA on a solution, but it has to be led by regulators, not the market, given the consequences for providers and their customers if they were to experiment in ways that were subsequently challenged by regulators or the courts.
The call follows a report from the Savings and Investments Policy project, a coalition of over fifty firms and consumer groups, which proposed in March an industry-wide and regulator-approved ‘kitemark’ for generic guidance that allowed providers to recommend products.
It said a framework developed and approved by the FCA which enables providers to point people towards the right products “that the 90 per cent of ‘people like you’ should consider in certain situations”.
It followed the publication in January of updated guidance which saw the FCA stand firm on the rules around simple advice, which stated processes involving a limited selection of relevant products would still fall under the same requirements as full advice.
Mr Evan’s speech also tackled wider European regulation on the insurance industry, noting that the central question remains how far regulators are prepared to balance customer exposure to risk against return and replace legalistic ‘belt and braces’ documentation.
“I hope in both debates, we can find a balance and listen to customers themselves about what they want, as well as continue to have an open mind to what behavioural economics science is increasingly telling us.”
Mr Evans also stated that the industry still struggles with reputation and engagement issues, suggesting several measures that could help improve on these.
This included transparency about payment of claims - “we need to be more open with customers with data about how many claims are paid, not just the overall amount” - and the establishment of better permission levels for how data is used.
He added that providers need to be clearer about how insurance distribution works and what value is added by each part of the chain, in as transparent a manner as possible.
“We can only engage in public policy debate effectively if we are also demonstrably tackling some of the issues which continue to bedevil our reputation,” Mr Evans said, adding that there are understandable reasons why insurers struggle to achieve the standing they would like.
“Insurance and savings products are non-exciting purchases which can often be rarely used or can only demonstrate benefit decades down the line.
“The highly regulated nature of the customer interface can limit interaction and help and all too often result in the worst kind of boilerplate language in customer-facing materials.”
peter.walker@ft.com
