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Consumer Duty: One Year On, Has Anything Really Changed? 

The introduction of the Consumer Duty regulations marked a significant shift in the UK insurance landscape as the FCA sought to improve customer outcomes and ensure products offer fair value. But 12 months on, can the FCA deem the regulations a success?

When Consumer Duty was introduced by the FCA in July 2023, it represented a step-change in how the insurance industry was regulated. Insurers are now required to monitor and report on customer outcomes and, where these outcomes are found lacking, to make improvements to processes and products. 

The duty was paired with new Fair Value assessments designed to ensure products offer value for customers, but the far-reaching nature of the regulations drew criticism from many sectors of the insurance market. 

This criticism largely focused on the increased workload that came with the duty in an industry that many already viewed as having an unnecessarily high regulatory burden compared to other markets. 

The FCA has now announced a review of the regulations to remove any overlap with the wider FCA rulebook, with chief executive Nikhil Rathi saying that the regulator is committed to “lowering costs for businesses and supporting the competitiveness and growth of the economy”. 

Outcomes Not Improving 

But what about the regulations’ impact on customer outcomes? 

Research from Smart Money People found that the vast majority (84%) of consumers have seen no difference in service from financial providers since Consumer Duty was introduced. 

Worryingly, the research also found that 7% of consumers have experienced declining levels of service in the past year – not exactly what the FCA was hoping to achieve. 

Complaints data from the FCA also paints a worrying picture, with volumes of complaints increasing by 2.3% year-on-year in the months immediately after Consumer Duty came into force. 

Insurers received 753,859 complaints over the second half of 2023 – the highest level for the final six months of a year since 2020 when the market was hit hard by the Covid-19 panedmic. 

And the latest Financial Ombudsman Service (FOS) complaints data, covering the final six months of 2023, found that the average upheld rate has climbed to 37% – up from 28% a year earlier. 

Jury Still Out 

Despite being 12 months on since the introduction of the new regulations, it is still relatively early days for Consumer Duty. We will know more about the impact of the regulations when the FCA releases its Fair Value metrics for 2023 in the coming weeks, although the true impact may not be felt for a year or more. 

As insurers continue to monitor and report on the performance of their products under Consumer Duty, the problem areas will become more apparent. It is then that improvements can be made and the true benefits for customers can be felt.  

But for now, the jury is still out. 

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