The Financial Conduct Authority (FCA) has warned protection insurers may see more policies lapsing or being cancelled through the cost of living crisis and that they should monitor these numbers, understand the reasons behind them and offer support to customers.
The regulator is also considering consultating on adapting its insurance Covid guidance for customers in financial difficulty.
In a letter to life insurance bosses covering expectations about treatment of customers amid the ongoing cost of living crisis, the regulator told insurers they should consider how to ensure customers were given the assistance they need.
This included offering flexible payment strategies or increasing premium holidays.
It added communications must be timely and firms must ensure customers are provided with information which allows them to make informed decisions about their protection insurance products.
Writing the letter, FCA executive director Sheldon Mills (pictured) told insurers to make customers aware that any immediate decisions, such as to reduce cover or cancel a policy, could have longer-term implications, for example the inability to subsequently reinstate the protection or that new underwriting terms may be required for a new policy.
Provide appropriate communication
Last month FCA director of insurance Matt Brewis confirmed the regulator would be writing to life insurance chief executives.
This followed letters sent to CEOs of general insurance firms in September telling them to ensure their customers were protected from unnecessary products or add-ons and unfair penalties.
In this latest communication, Mills told bosses the regulator expected life insurers to ensure customers were provided with appropriate protection product information during all stages of communication and to make customers aware of the options available to them if they have difficulty paying premiums.
“Insurers may see an increase in the number of protection products lapsing or being cancelled,” Mills said.
“Insurers should make sure they monitor policy arrears or cancellations and understand the underlying drivers for any trends. Insurers should then consider how to ensure customers are given the assistance they need.”
Where customers are in financial difficulty, Mills said the FCA expected insurers to take a flexible approach to deliver a fair outcome for them which could include offering “flexible payment strategies or increasing premium holidays”.
Insurers should include consideration of the FCA’s Covid insurance and premium finance guidance.
Informed about consequences
Mills also pointed out that it was essential insurers acted to ensure customers were provided with information which allowed them to make informed decisions about their protection insurance products.
Consequently, Mills said: “Insurers must make customers aware that any immediate decisions, such as to reduce cover or cancel a policy, could have longer-term implications (e.g. the inability to subsequently reinstate the protection or that new underwriting terms may be required for a new policy).
“Where there are products that have regular reviews which could result in premium increases, insurers they should be aware of how this can affect customers who are likely to be financially stretched in other areas.”
On this point, Mills added the regulator had seen examples of reviewable whole of life products where premiums have increased significantly with little notice to customers.
Touching on customer communication, Mills says this should be timely and must clearly outline the reasons for increases and the options a customer has.
While not a direct consequence of the current increases to the cost of living or the changes to market conditions, these nonetheless make it even more important for insurers to ensure that their life protection products offer fair value to customers and that these products and the levels of cover are appropriate for their needs, Mills continued.
Mills added the regulator expected that insurers already fully complying with fair value and other product governance rules should be meeting these requirements.
Mills added the regulator would continue to monitor and scrutinise firms over the situation.