The Financial Conduct Authority (FCA) is urging mortgage advisers and brokers to inform customers about the importance of protection when going through the mortgage buying process.
The regulator illustrated examples of good practice from advisers but also highlighted where customers with complex needs were struggling and the importance of signposting.
It highlighted the points in the final report of its pure protection market study, which is focusing on expanding access to protection insurance.
For the mortgage process, it emphasised that under the Consumer Duty firms must ensure consumers are given the information they need to make effective, timely and properly‑informed decisions.
“When consumers take out a mortgage, advisers or brokers should ensure they understand the product,” the FCA said.
“That includes the associated risks (for example, failure to keep up with repayments resulting in accumulating arrears or repossession of a home) and how to mitigate them.”
However, it was encouraged by how some advisers prompted customers to think about their protection needs when arranging other financial products, such as mortgages.
Three scenarios were singled out for particular praise:
- An adviser makes customers aware of any risks associated with their products (such as the implications of failing to continue to meet mortgage commitments) and prompts the customer to consider how these risks may increase as a result of unexpected circumstances such as illness, death or other income loss and could be mitigated by protection cover;
- An adviser can reasonably see that if a customer is relying on current earnings that may be unstable and suggests that their lack of protection is making them less financially resilient;
- An adviser learns of a change in a customer’s circumstances related to life events such as marriage or becoming a parent or guardian and considers whether the products they currently hold still meet their needs.
Signposting
However, the FCA felt the need to remind advisers and insurers not to forget their ‘signposting’ obligations under the Consumer Duty.
The report found that some consumers were struggling to access protection cover due to traditional products not meeting their complex needs, which would not help close the protection gap.
If a firm declines a consumer cover, they must, under FG22/5, consider if there is support elsewhere that could help meet their financial objectives.
For example, travel insurers should ‘signpost’ a consumer they declined due to a medical condition to a directory of specialist insurers.
The report stated that pure protection insurers and intermediaries should consider a similar approach when they decline consumers.
The British Insurance Brokers Association (BIBA) and the Association of British Insurers (ABI) have launched a total signposting commitment to make it easier for consumers to find suitable insurance.
The FCA’s report stated firms may wish to consider signing up to the commitment and direct customers to BIBA’s services.
MoneyHelper’s website is another source of information that declined consumers could be directed to.
Customer product understanding
The pure protection market study also discovered that some consumers have not bought protection cover due to not understanding how these products work.
The FCA’s report reminded firms of their obligations under the duty concerning understanding, where consumers should have the information they need, at the right time and presented in a way they can understand.
This means key information should be clear, visible and accessible.
The information should be presented logically and avoid jargon and technical language. And any communications should be tested to ensure consumers understand them.
Changing needs and regular contact
The FCA took this opportunity to remind firms that under Consumer Duty, they should contact customers at various points during the life of a product.
A customer’s circumstances can change, and firms should prompt them to see if a product still meets their needs.
The FCA encourages firms to review its report on Consumer understanding: good practice and areas for improvement.
This outlines good practices and steps firms may wish to consider when assessing how they comply with their obligations under the duty.