Consumer duty  

CII: Insurers 'nervous' over liability of consumer duty

CII: Insurers 'nervous' over liability of consumer duty

The Chartered Insurance Institute has said insurers are "nervous" about the Financial Conduct Authority’s incoming consumer duty because it poses the risk of being interpreted differently over time.

The chartered body included the observation in a nine-page guide for insurers, published yesterday (November 16), to help them avoid poor practice ahead of the consumer duty implementation deadline in July 2023.

The duty has been designed to weed out financial services firms which fail to act in a client’s good faith, which fail to avoid foreseeable harm to customers, and which fail to support customers in their financial objectives.

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It applies to a firm’s products and services, price and value, the way it communicates with customers, and its processes.

From the end of July 2023, this duty will apply to all new and existing products and services. A year from then, the duty will also apply to closed products and services.

Director of policy and public affairs at the CII, Matthew Connell, said one thing that makes insurers nervous about outcomes-based regulation is the thought that it could be interpreted differently over time. 

“What is normal and acceptable now might look very different in 10 or 15 years’ time: we only have to remember that cars used to be built with no rear seat belts and passengers were allowed to smoke on the Underground to see how much standards can change in the course of a career.

“As a result, a lot of the debate around the consumer duty has focussed on who is liable if outcomes are not met.”

Connell said insurers’ senior managers should be curious about the outcomes that consumers are experiencing, and be able to show that they have thought about any problems and are genuinely looking for solutions.

“As people who understand financial services better than anyone else, we should be aware of situations where people frequently misunderstand products or underestimate risks, and work hard to help them avoid harm, through better communications, better products or more response service,” Connell added.

“Our good practice guide outlines the significant practical benefits to be gained by firms who explore their customers’ needs from different perspectives.”

Information layering

The CII told insurers in its guide that the Financial Conduct Authority “is not looking for firms to become responsible for the actions of other authorised firms”.

The chartered body continued: “It is looking for firms to consider how their business model, and their choice of business partners, is impacting consumer outcomes - and what kind of thought processes are going on at senior management level to improve consumer outcomes where necessary.”

One theme the CII said recurs during the FCA’s examples of good practice is the prioritisation and layering of information. 

“Where firms find that a key piece of information is not getting through to consumers, the FCA expects firms to create simple, specific communications to bring important issues directly to their customers’ attention – for example, on their website or in a summary document,” the CII said.