The Financial Conduct Authority (FCA) has written to insurance industry CEOs telling them to ensure their customers are protected from unnecessary products or add-ons and unfair penalties.
And the regulator warned where poor practise is found, it will “quickly intervene” to protect customers from harm.
The letter follows FCA concerns that the cost of living crisis will cause some customers to cut-back on the insurance they need, leaving them without protection.
While the regulator acknowledged government support for customers and business, including a two-year energy-price guarantee for households, it warned that customers including businesses in financial difficulty were also more likely to need to pay for their insurance monthly through premium finance.
The FCA added they may also be the most affected by general interest rate rises and have a higher likelihood of not being able to make a payment.
The regulator further warned that the impact on customers facing increasing difficulty paying bills or repaying debts is unlikely to be purely financial as they will more likely face pressures on their physical and mental health, which in turn could worsen the impact of their financial difficulties.
Vulnerable customers
In the letter the FCA sets out its expectations for insurers which include calling on bosses to ensure consumers get access to fair value products.
It also highlighted the plight of customers in vulnerable circumstances and recommended that when providing appropriate support to customers in financial difficulty, insurers should consider its Covid insurance and premium finance guidance.
The FCA added that as this guidance builds on existing Principles and rules, including Treating Customers Fairly and acting in the best interests of customers, some actions under the guidance may also be relevant for the treatment of consumers in financial difficulty due to cost of living pressures.
These include:
- reassessing the risk profile of customers
- considering whether other products better meet the customer’s needs
- working with customers to avoid the need to cancel necessary cover
- waiving fees for adjusting a customer’s policy in line with the assessments above
- waiving the cancellation fees where it needs to do so to ensure it is treating its
customers fairly.
And for premium finance:
- suspending, reducing, waiving or cancelling further interest or charges
- permitting the customer to make no or reduced payments
- allowing the customer a reasonable time and opportunity to repay the debt,
including by deferment of payment of arrears - accepting token payments for a reasonable period
- agreeing a repayment plan, and
- rescheduling the term
It highlighted that considering premium finance as part of fair value assessments, with price (APR) was likely to be the most significant factor in determining whether the premium finance provides fair value.
Firms must consider whether non-investment insurance products, including when sold with premium finance, represent fair value for customers, and firms need to consider premium finance as part of their fair value assessments.
The FCA added firms must also give consumers clear information about the cost of any premium finance arrangement and make it clear that this makes the contract more expensive.
Service levels
The FCA said it expects firms to consider the impact on customers when taking steps to reduce costs in customer support functions.
Under the Consumer Duty firms will need to design and deliver support to retail customers, such that it meets the needs of retail customers and ensures they do not face unreasonable barriers during the lifecycle of the product, including when submitting a claim or switching product.
Where consumers seek to make savings through switching, the regulator said it expects firms not to engage in ‘sludge practices’, introducing excessive friction in processes that prevent consumers from making decisions in their interests.
The FCA added firms must also provide consumers with easy and accessible options for cancelling auto-renewal on their policy.
Underinsurance
The FCA said firms must provide customers with appropriate product information and only propose policies that meet customers’ demands and needs.
Given the increased risks around underinsurance and increased prevalence of ‘basic’ or ‘essential’ products, it is important firms ensure that when proposing contracts of insurance, they meet customer’s demands and needs, and that appropriate information is given to customers about products.
The information given must contain a range of information including a summary of the insurance cover and the main exclusions where claims cannot be made.
Claims
The FCA told insurers that they must handle claims promptly and fairly.
While firms may see an increase in fraud, it added it is important that firms do not introduce additional processes which unreasonably delay or potentially decline payments for valid claims.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “Customers who are struggling with their finances should contact their providers as soon as possible. We encourage customers to continue to shop around to find the best deal.
“Firms should not unfairly penalise them for any payment difficulties but instead work with them to find solutions.
“We have a thriving and efficient insurance sector, and we want people getting the cover they need at a cost they can afford so both business and customers benefit.”