The Financial Conduct Authority (FCA) has warned the insurance industry to improve monitoring to determine whether firms are delivering good outcomes for retail customers, as required by the Consumer Duty.
It highlighted that some firms were focussing too much on processes than outcomes and that some board reporting contained limited insight.
And the regulator added there was little evidence of monitoring resulting in proactive action to improve consumer outcomes.
The findings came from an FCA assessment in December 2023 on the most recent Consumer Duty board reporting from 20 larger insurance firms including general insurers, life insurers, intermediaries and regulated third-party outsourcers which service insurers.
‘Wide variety in quality of responses’
Overall, the regulator found a mixed bag of results of how the new regime was being introduced and adopted by firms.
“We saw a wide variety in the quality of responses by firms, including a number of good and poor practices,” it said.
“Some showed good progress in developing a clear and comprehensive firm-wide approach to monitoring customer outcomes.”
However, not all firms were reaching the standards the FCA expected, prompting its warning.
“Many firms need to make improvements in their monitoring to enable them to determine whether they are delivering good outcomes for retail customers, as required by the duty,” it continued.
“Some approaches were overly focused on processes being completed rather than on outcomes delivered.”
“Some board or committee reporting contained limited insight into actual customer outcomes.”
This was often because metrics or data were not comprehensive enough, data lacked analysis and explanation, or there were thresholds or standards in place which did not appear to be appropriately set or communicated.
Notably, the FCA added: “Few firms were able to provide clear evidence of where the monitoring of outcomes had directly led to proactive action being taken to improve these outcomes, where necessary.
“While inadequate monitoring itself would not necessarily result in poor customer outcomes, monitoring is essential for firms to identify and remediate them.”
Although the assessment was conducted on larger firms, the FCA also had advice for smaller firms.
“There are proportionality rules in place, and we expect smaller firms may take a different approach, applying a commensurate level of resource and with simpler governance or processes,“ the FCA said.
“But all firms have a duty to act to deliver good outcomes for their customers.”
Good vs bad practice
The FCA outlined a series of good practice and poor practice behaviours observed during its review, which it said were intended to give practical help to firms in complying with existing rules and guidance.
The FCA said: “A good practice is behaviour that we consider is likely to meet our expectations for compliance with the standards in PRIN 2A.9.
“We would expect any firm properly taking into account the purpose of PRIN 2A.9 to recognise these behaviours as likely to meet our expectations for compliance.
“However, we are aware that there are likely to be other equally effective ways of demonstrating compliance with these standards.“
On the issue of poor practice, the FCA said: “A poor practice is behaviour that we consider is unlikely to meet our expectations for compliance with the standards in PRIN 2A.9.
“We would expect any firm properly taking into account the purpose of those rules to recognise these behaviours as unlikely to meet our expectations for compliance.”
Next steps
The FCA emphasised 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.
Retail financial services firms in other sectors may also find these observations useful.
And on the issue of closed products, the FCA said: “The findings should be used when firms are considering approaches to monitoring outcomes on closed products, as required from 31 July 2024.
“Firms can also use these findings to support them in the development of their first Consumer Duty annual report, due by 31 July 2024.”
Health & Protection reported in April that the FCA had identified five key areas ahead of the closed books Consumer duty deadline, that firms should be considering.
The FCA said all firms participating in the review will receive individual feedback and added: “Where appropriate, we will also consider use of supervisory tools to make sure that progress is made to meet the requirements of the duty.
“Firms that identify gaps in their compliance with our rules should act immediately, putting robust plans in place to address any shortcomings.”
