The Financial Conduct Authority (FCA) is warning protection product providers that simply complying with fair value rules they are already subject to will not be enough to meet Consumer Duty requirements.
The regulator highlighted that additional factors will need to be included such as customer service and the role of outsourced service providers (OSPs), in addition to its Prod rules.
And it also emphasised there was “a great deal of work” to do for providers with closed products and long-standing customers.
The details were included in the regulator’s letter to CEOs and directors of firms implementing the Consumer Duty in the life insurance and pure protection sector.
Satisfying Prod alone is not enough
Specifically addressing pure protection providers, the FCA acknowledged firms selling these products will already be subject to product governance and fair value requirements under its Prod rules.
It noted compliance with these rules will meet the products and services and price and value outcomes required under the duty.
However, the FCA emphasised there were further factors these firms need to take into account, with the product and services outcome including rules related to the manufacture of services.
“In addition, the scope of the duty is broader than the scope of Prod, so satisfying the Prod rules alone is unlikely to mean that a firm meets all aspects of the duty in relation to its regulated business,” the FCA said.
“For example, firms would still need to consider elements of the duty such as the customer support outcome for their product or service, and to pay appropriate regard to the nature and scale of vulnerability characteristics that exist in the target market.”
And it added that any overlap with non-pure protection products would need to be closely scrutinised as well.
“Firms offering pure protection should already be familiar with the Prod 4 requirements on fair value, noting that compliance with those existing rules will satisfy that part of the duty,” the FCA continued.
“However, this will be a new requirement for firms offering some other insurance, including insurance-based investment products and pension products, who now need to consider if they are providing fair value to retail customers in order to comply with the price and value outcomes.
“We expect firms to be developing robust approaches to what long-term value looks like in pension and investment products.”
Closed products causing consumer harm
For firms with closed book products the FCA warned there was still “a great deal of work for life insurers and OSPs with closed products to do” to satisfy requirements under price and value and customer understanding and support outcomes.
“Firms should not be complacent regarding the July 2024 deadline,” it warned, adding that the duty seeks to “raise the bar for customer servicing, and firms with books of closed products will need to consider all relevant aspects of the duty”.
It emphasised that in closed products, customer journeys and servicing have not always worked well and the FCA has seen practices by some firms that may cause harm.
This included firms “presenting information in a way that exploits behavioural biases given the long-term nature of products and placing unreasonable barriers in customer journeys which prevent consumers from getting the assistance they need” to enable them to take further action or make timely decisions.
Examples of this include:
- firms providing closed product customers with few channels of communication and the inadequacy of these leading to unreasonable service delays from under-resourced call centres;
- unnecessary multiple hand-offs where customers are obliged to repeat what they need several times over;
- and claims processes involving bereavement which do not take sufficient account of vulnerability considerations, exacerbating distress and inconvenience to the claimant or beneficiary.
“For those with significant books of closed products, we anticipate this is where a significant portion of life insurers’ and OSPs’ effort will be required,” the FCA continued.
“Firms can expect we will want to engage with them to understand how they are approaching the variety of challenges and activities required in order to achieve timely compliance with the duty.”