With the Consumer Duty about to come into effect in a month’s time, intimidating question sets simply will not pass the muster, according to James Daley, managing director at Fairer Finance.
“Number one, on my list for the protection industry is question sets. As more and more people buy protection online without advice or guidance most are still faced with lengthy complex questions sets, which are uncomfortable and often intimidating”, Daley said at Protection Review’s ProtectX7 event this morning.
But the industry seems to be fine with current state of affairs.
“Until now, my perception is that the protection industry’s approach to question sets has been to believe that it’s up to consumers to answer them accurately – and if they don’t then it’s reasonable for them to suffer the consequences, no matter how serious they are.
“But I’m not sure this approach passes muster in a Consumer Duty world,” he warned.
Intimidating questions may actually encourage customers to lie.
“Many still ask you, for example, if you suffer from stress and anxiety – a question, which to my mind, invites a lie. Anyone who says no, is simply not telling the truth,” Daley said.
“Questions about how much you drink, how much you weigh, whether you have the odd cigarette, are all uncomfortable for the average person.
More about denial than mendacity
So the question is – are people purposely lying, or is there something else happening?
“Let’s be honest, most people aren’t truthful to themselves about these things – so giving the wrong answers, may be more about denial than mendacity.
“Most people I’ve spoken to about applying for insurance admit to lying at some stage in their life, or at least stretching the truth from time to time. Presumably modern underwriting is all about second guessing the lies.
“But who gets a better price? The earnest or the downright dishonest?” he asked.
Though dishonesty may seem to pay off, the consequences can be far worse for the consumer than imagined.
“The problem with this approach, of course, is that the consequences of giving a wrong answer can be incredibly serious,” he said.
“It may mean that they have a claim rejected when they’re unable to work, or that a family doesn’t receive the life insurance that they were counting on when the breadwinner unexpectedly dies.
“And of course, in that latter example, the applicants are not around to even defend their case,” he said.
Meanwhile, the industry needs to help its customers give the right answers.
“In this world where firms are obliged to prove that they are working to deliver good customer outcomes, I think it’s incumbent on protection insurers to support customers in giving the right answers and to help them understand the consequences of giving the wrong ones.
“And frankly, if that’s too difficult to achieve in a direct consumer environment, then maybe it’s not reasonable to be asking those questions in the first place,” he said.
This one is a biggie
Another critical area for firms to consider is how do they ensure that their customers can actually understand them.
With the Consumer Duty, companies do not only need to prove they offer fair value “but also to prove that they have the right level of support for their customers, the right product governance and that they are communicating with their customers in a way they can understand” Daley said.
“That last one’s a biggie. Many of the firms that we work with over the last 12 months are finding, they’ve got the most work to do here.
“After all the fact that most consumers don’t understand our industry’s jargon has been the worst kept secret of the last two decades,” Daley said.
“Everyone knew that their letters policy documents and application journeys needed simplifying, but it’s always been at the bottom of everyone’s list of priorities.”
Consumer Duty raises the bar considerably on that front.
“From the end of next month it is no longer good enough to show that your documents are just clear, fair and not misleading. Instead, you need to prove that your customers can understand,” he said.
He said that while taking Consumer Duty should be creating a lot of work, it is important to remember two things.
“Firstly, the expectation is not that every firm is perfect, by 31 July . Companies, just need to have identified areas where they need to improve and be well on the way to making those improvements. Work plans should be strictly prioritised with fixes to prevent serious harms at the top of the list.
“The other thing to remember is that when a new piece of regulation, throws up a lot of work it’s all too easy to lose sight of the bigger picture,” he said.
While that means a firm proving that it is working to deliver good customer outcomes, including communicating more, and tightening up product governance, “It also requires you to take a step back and look at the parts of your business model, which maybe as old as the hill, but were never really designed with great customer outcomes in mind,” he added.