The Financial Conduct Authority (FCA) has emphasised that its fair value rules do not mean prices for financial products and services cannot rise.
However, it told insurers to ensure that any increases provide fair value to customers given the cost of living crisis. And it urged firms to focus on identifying and supporting vulnerable customers.
Speaking on the regulator’s latest podcast, FCA executive director Sheldon Mills explained how the regulator was directing the industry to respond to the tough economic situation in the country.
One of the biggest elements was ensuring products provided fair value to customers, with Mills noting that it was “not just price, but also the quality of that service”.
“As firms start to think about the assessments they make of the value of their products and services, it’s important to take the cost of living into account, because if there’s any time at which customers need the best value that they can get out of a product and service, the price at which it’s there, it’s now,” he said.
However, Mills noted that as unusual as it was for a regulator to say, this did not mean prices could not rise, but that it could not be done recklessly.
“It doesn’t mean that prices won’t go up and that’s really important,” Mills said.
“And sometimes it’s hard, as a regulator, for you to say that to people, your prices will go up. But rising inflation means rising inflation for businesses as well.”
He continued: “That needs to go somewhere into the system, and the likelihood it means that some of that may lead to some increases in the premiums for people.”
“What we ask insurers to do when they think about passing through those costs is to ensure that they’re providing as fair a value they can in the context of that cost-of-living crisis.
“Customers are struggling a bit; they’re also struggling with the pass through of those costs. So, the framework of the Consumer Duty allows, we hope, to get to that fair exchange, given that context.”
Focus on vulnerability
Mills also highlighted the importance of firms being able to identify and support vulnerable customers during the current period where people may find themselves in financial difficulty.
He noted that the regulator was concerned to ensure the industry was thinking about fair treatment of customers with vulnerable characteristics.
Mills said it was “really important that firms are able to identify and recognise people who might have vulnerabilities. And that isn’t just about accessibility.”
“It can also be about mental health challenges, which can sometimes go hand in hand with debt issues.
“And so, firms really need to ensure that they’re looking out for vulnerable customers or customers with vulnerable characteristics and their journeys, their consumer journeys and how they treat those customers takes account of those individual needs.”