Fair value requirements under the Consumer Duty are causing providers and advisers alike to regularly review product offerings and propositions.
For advisers this has meant keeping a close eye on tweaks to offerings as well as product launches.
The good news for the protection sector is that compliance with the legislation has required an evolutionary rather than revolutionary approach.
But while the regulator consistently points out, Consumer Duty is not and never will be a ‘one and done’ exercise, the fact that not all manufacturers make their fair value assessments (FVAs) available on their website could threaten advisers’ attempts to comply with the legislation.
Keeping a product register
“I have to keep a product register for each insurer,” Gary Ward, director of operations and compliance at Broadway Insurance, and also chairman of Manchester and West Pennines at the British Insurance Brokers Association (BIBA), tells Health & Protection.
“So I need to ensure the products we offer to the consumer fit their needs essentially,” Ward continues.
“I have to monitor what products each insurer is offering and who the target customer is.
“We have to monitor that and look at things like cancellation rates, customer satisfaction, complaints, things of that nature.
“We need to have good management information to see if we can identify any trends or any problems in the products that we’re offering to the customer.
“Is the product actually doing what it’s supposed to be doing? Is it meeting the client’s expectations?
“It’s close monitoring of what we’re offering as a company, what advice we’re giving to the clients.”
Conducting regular assessments
Mortgage Advice Bureau (MAB) told Health & Protection key parts of its compliance with the requirements comprises conducting regular assessments and evaluations of products, pricing, and services.
That includes analysing market trends and competitor offerings to ensure pricing remains competitive and reflective of market conditions, while reviewing customer feedback to identify areas for improvement.
It also conducts internal audits and reviews to ensure compliance with regulatory requirements and fair value principles.
MAB added that it is committed to providing clear and transparent information to its customers regarding the value they receive from products and services.
This covers clearly disclosing fees, charges, and terms associated with any products they may recommend, which it said helped the customer to make informed decisions upfront, and providing accessible and easy to read documentation that outlines the proposition offering and ongoing service.
Alan Lakey, director of Highclere Financial Services and CIExpert, says fair value has always been “fundamental” to processes.
“I believe that the majority of consumers can tell if their adviser is ‘dodgy’ and will eventually jump ship if it is the case,” Lakey says.
“As all of our business comes via recommendation we can ill afford to lose a client who then relays their dissatisfaction to the recommender.”
Shopping around
But different advisers will respond to the fair value requirements in a variety of ways dependant on the nature of their business.
Andrew Wilkinson, director at Moneysworth, reveals the requirements have led his advice firm to provide a shopping around service for customers, the majority of whom have medical disclosures which are often complex.
“We research the market for each client for available options, taking into account likely product availability, ratings and exclusions,” Wilkinson explains.
“For rated life cases we look for which companies might offer cover and secondly the likely premium. Differences in underwriting philosophies between insurers have a significant affect on both product availability and price over the term of the contract.
“Also we find it common for the best value price not to be offered by the insurer who offers the lowest standard rates on a comparison.
“It is also often the case that appetite for risk can significantly impact product availability between insurers.
“Our approach is based upon thorough market research and aims to avoid foreseeable consumer harm that otherwise might occur from a more limited presale research approach.”
Looking at her own business, Joanna Streames, owner of Velvet Mortgage and Insure Services, said she has created more transparency in her firm’s pricing and terms.
“Our pricing structures, terms, and conditions associated with products and services are now simpler,” Streames explains.
“We provide clear and easily understandable information to customers about what they are paying for and what they can expect in return initially verbally, followed up in writing and then clarifying once again verbally to confirm understanding.
“We have clear processes for fees if these will change along the way and in what circumstances.”
Assessing fair value for the past 10 years
But what of the providers? How are they complying with fair value requirements?
It appears the prevailing trend has been one of evolution rather than revolution.
Scott Cadger, head of underwriting and claims strategy at Scottish Widows, told Health & Protection the insurer has been assessing fair value for the last 10 years with its customers and advisers “at the heart of products and processes”.
“As a business, we must comply with our product management and governance policy and we continually collect and assess evidence that our products meet the needs of customers and will deliver fair value across their lifespan,” Cadger says.
“We identify all risks and manage them in line with our policies.
“We must always be able to show that our customer offering can be managed and maintained in line with expectations and terms and conditions, while complying with all relevant regulation and legislation and providing the relevant support, including IT and systems in place.”
Handful of improvements
Jacqui Gillies, marketing and proposition director at Guardian, said the insurer conducted a full review of its product development process (PDP) against PROD4 rules when the Consumer Duty came into force last July.
“We then published a comprehensive Consumer Duty section on our website, both to meet our own regulatory requirements and to help advisers do so too,” Gillies says.
“We encourage all Guardian’s registered advisers to read our product target market statements and fair value assessments. We review and update these quarterly, with the most recent update being in January 2024.”
While its review confirmed major change was not needed, it did result in a handful of improvements to governance, Gillies says.
“In addition to adding fair value consideration throughout the lifecycle in line with the FCA guidance, we also added in new criteria to stage one of the PDP, idea or change definition, to make sure we considered vulnerable customers and fair value considerations as part of the target market and customer insight,” Gillies continues.
“And we enhanced stage 4 of the PDP, warranty and review, to include additional questions around claims.
“We already had appropriate committees in place to monitor and manage our products and their value, but we also made sure all the relevant people in our business were aware and understood our overall product and governance policy.
“Going forward, we conduct quarterly product reviews to make sure we continue to meet the duty on an ongoing basis.”
Publishing fair value assessments
At Royal London, proposition specialist Jennifer Gilchrist notes the July deadline saw the insurer introduce a new framework to identify and highlight good outcomes for customers, which is also aligned to its purpose and strategy.
“The framework covers our suite of propositions, specifies good outcomes, potential for foreseeable harm, aligns value of money objectives and details the metrics we have in place to assess customer outcomes,” Gilchrist says.
“We publish our fair value assessments and adviser-facing colleagues use these to support and inform advisers on the outcomes our products deliver as well as Consumer Duty requirements.”
Matthew Dijkstra, chief customer officer and Vitality Consumer Duty executive champion, tells Health & Protection: “As part of our commitment to fair value, we regularly review our product oversight and governance framework and products, ensuring they meet the needs of our target market and provides fair value for customers.
“We additionally publish summaries of our fair value assessments to our website and have introduced fair pricing principles to ensure fair value is always the key objective within our products.”
And it’s clear these provider FVAs have become an important source of information for advisers.
David Hollingworth, associate director of communications at London & Country Mortgages, explains: “We will regularly review the provider fair value assessments for all products to ensure that they continue to be suitable for our customers and have made sure that we have the right data in place to ensure we continue to achieve the right outcomes.”
Mixed bag
But the introduction of these assessments has proven a “mixed bag,” according to Brett Hill, head of health and protection at Broadstone.
“The introduction of fair value assessments has definitely been a mixed bag in terms of providing intermediaries, and customers, with useful information about the value of insurance products,” Hill says.
“When IPIDs (Insurance Product Information Documents) were introduced in 2018, a key element of their success was the obligation on insurers to provide these in a standard format.
“Sadly, no such obligation exists when it comes to the production of FVAs.
“Not all manufacturers make their FVAs available on their website, not all are available in a downloadable format, and there is zero consistency regarding the structure or content of the documents.”
And this has proven “frustrating” for intermediaries, Hill said, who may have to review “hundreds” of such documents each year depending on which markets they operate in.
“More importantly it reduces the benefit to customers of actually producing these documents,” Hill continues.
Not a ‘one and done’
But the advisers’ appetite for important information is only likely to grow as the regulator has consistently pointed out that the Consumer Duty is not a ‘one and done’.
As Wilkinson highlights: “We are always thinking about how we can further improve our processes and nothing stands still.
“The Consumer Duty is definitely not a once and done compliance exercise.
“To mention one relevant example, there is an expectation under the duty to report along the distribution line when we become aware of poor consumer outcomes.
“Product gaps, where cover is unavailable to certain groups of consumers based upon certain health disclosures, is a key area for poor consumer outcomes.
“This is especially in the income protection and critical illness areas. We will be feeding back to insurers where we find evidence of product gaps that cause poor outcomes for these consumers.”