The Financial Conduct Authority (FCA) wants the protection industry to increase promotion and take-up of trusts and beneficiary nomination services to improve the claims process.
As part of its exploration of protection claims processes, it outlined the “beneficiary gap“ of policyholders not having these in place. Meanwhile, it also highlighted some good claims-related practices seen across the market.
It noted that innovations such as trusts and beneficiary nominations could prevent uncertainty and unintended outcomes to enable beneficiaries to be paid faster after a claim has been made, avoiding the need for lengthy probate.
The regulator told insurers in the final report of its pure protection market study that it wants to see a higher uptake of such tools as well as consumers having a better understanding of how they work.
‘Beneficiary gap’
Firms are offering such tools at the point of sale, but the FCA believes they are “promoted inconsistently and consumers may not understand their importance“.
This contributes to a “beneficiary gap“, which is the percentage of policies set up without a named beneficiary.
Despite these concerns, the regulator reports “low levels” of complaints, while claim approval rates remain “high relative to other insurance markets”.
Additional steps
The FCA has seen positive examples of firms taking steps to improve take up and customer understanding of these preparatory tools.
This includes several insurers routinely prompting customers to consider how benefits would be paid following a claim and whether additional steps are needed to ensure payouts are delivered smoothly.
Some firms have introduced beneficiary nomination mechanisms to reduce claim delays and complexity, while there are intermediaries training their staff on the role and implications of trusts and beneficiary nominations.
One area that could improve consumer take‑up could be to embed these preparatory tools into the digital sales process.
For example, including a beneficiary nomination within the online application.
The FCA called upon firms to consider how they can offer a more integrated insurer‑intermediary journey.
This could include firms being more joined‑up on who raises claims experience options, when these conversations occur and how customers are supported.
Simplifying consumer journeys
The protection gap remedies are designed to reinforce the FCA’s expectations under existing rules and will include increasing awareness of an improved claims experience.
This will include a Protection Distributors Group‑led awareness campaign to help consumers understand the role trusts and nominated beneficiaries can play in ensuring protection benefits reach the intended recipients quickly and effectively.
Then there is the Association of Mortgage Intermediaries‑led cross industry initiative, which will also consider the relevance of preparatory tools to support advisers in raising these topics where appropriate, including at key life events and other product reviews.
This may also involve engaging with insurers to explore potential opportunities to simplify consumer journeys and processes, where this could help customers make more informed use of these tools.
Further intervention
The FCA will monitor indicators relevant to the claims experience, including the take‑up of preparatory tools and if awareness has grown.
If outcomes do not improve, or industry‑led work does not progress sufficiently, the regulator would consider making a further intervention.
The FCA added it will use its supervisory activity and market data to ensure that increased pure protection sales are not due to bad sales practices.