The session involved those implementing Consumer Duty at both insurers and MGAs, as well as compliance consultants, and started with a roundup of the challenges insurers are facing.
One of the consultants said that the biggest challenge insurers are grappling with centres around the availability of data, particularly when it comes to Fair Value assessments.
They cited distribution costs as a key area of concern and said that many insurers are forgetting about affiliate introduction costs when it comes to assessing policy value.
This should be particularly worrying for insurers, with one participant pointing out that the FCA has already clarified that compliance with PROD 4 – the fair value of non-investment insurance products – means that a firm will also be compliant with Consumer Duty.
So, if a firm is now saying that a product may not be compliant with Consumer Duty, they are also non-compliant with the already in-force Fair Value regulations.
One compliance expert pointed out that this should not come as a surprise given that no products have been pulled from distribution for failing to meet the Fair Value requirements.
Another attendee said they believed it was the evidencing aspect of Consumer Duty that has brought this to the fore, with individuals now required to put their name against such an assessment – something that has not previously been a requirement of Fair Value.
Vulnerable customers was cited as another area of concern – something that has been raised by the FCA.
One participant gave the example of a warranty insurer providing cover for the fridge of a diabetic, explaining that this could easily be captured in the user journey, but it does require a change in thought process for many.
Another attendee said that the real problem insurers are facing is those cross-cutting aspects of the regulations that touch multiple areas of the value and experience chain.
To deal with this, they said insurers need to join the dots across the different parts of an insurance company, and this in turn requires a different way of thinking – primarily looking at the different customer outcomes at each stage of the user journey from product design and marketing, all the way to making a claim or complaint, and then linking them.
And another cited the example of clients outside of the insurance industry who have taken the approach of performing business model analysis to see where they are making the most profit, and how this has changed over time relative to inflation.
They believe this is a better approach to assess the value of a product, although did say this other industry does have more data readily available to help with their assessment.
An insurer representative said that they have just started a piece of work aimed at analysing the entire user journey, with a particular focus on the understanding of a policy.
This involves challenging different areas of the business to provide clarity with the purpose of improving the wording and positioning of a product to aid understanding, not just for the customer but for distributors too.
Another insurer agreed and said that they are viewing broker partners as a form of customer to ensure that any communications with them are viewed through the same lens, to help ensure good outcomes across the value chain.
In order to achieve this, however, attendees said that many insurers will need a cultural shift in terms of how they look at outcomes and assess their products.
And this could include involving the risk team more closely with product assessments, something the FCA has already highlighted as an area of improvement as part of its multi-firm review.
While personal lines is often seen as the main focus of Consumer Duty, those in attendance were also keen to talk about the implications of the new regulations on commercial business.
It was pointed out that any risk not defined as a large risk or group business is covered by Consumer Duty, regardless of whether it is classed as commercial or personal lines.
But that does not mean that the approach to implementation should be the same.
One commercial lines insurer said they are focused on what the regulations mean for their direct and smaller clients, as this was where the regulations are having the biggest impact on commercial business.
This is particularly important for SME and micro-SME businesses, many of which operate as sole traders rather than as a limited business and, as such, should be treated like personal lines customers in their understanding and needs when it comes to insurance.
Those sat round the virtual table were also keen to point out that Consumer Duty must be an iterative process – and that ongoing monitoring, reporting and improvements must continue to be made after the July implementation deadline.
And one attendee pointed out that if you have a dashboard that is covered in green, you’ve done your assessments wrong and will need to start again.
They said that insurers need to be focused on being ready for attestation by the end of July, and it is then that you start working on the ‘risks under management’ that have been highlighted as areas of focus for remedial action.
Part of this will, of course, require ongoing monitoring of data, with one insurer citing metrics such as net promoter scores and complaints handling performance as two areas that were already proving useful.
To help facilitate ongoing discussions around Consumer Duty, Insurance DataLab will be hosting further roundtable events. Please get in touch if you are working on implementing the new regulations and are interested in getting involved.
Insurance DataLab’s insight platform also includes a number of metrics that help with monitoring performance under Consumer Duty. Apply for a free trial now.
