Belinda Bagnall of Residentsline looks at the need to ensure you are being fair in all of your business dealings.
Since the Financial Conduct Authority launched their “Treating Customers Fairly” principles in 2006, all regulated firms (regardless of the nature of their business) have had to show that the “fair treatment of customers is at the heart of their business model.”
This now includes a yearly Fair Value Assessment for insurers, brokers and others distributing insurance policies, with a focus on whether or not the firm is providing ‘fair value’ for their customers- a somewhat abstract idea to test.
So, how will insurers comply with the new guidelines? We try to make the intangible a little more tangible below.
Key Customer Outcomes
The 6 Consumer Outcomes set out by the FCA are the bedrock of the Treating Customers Fairly principles:
- Consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.
- Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
- Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
- Where consumers receive advice, the advice is suitable and takes account of their circumstances.
- Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
- Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
Firms must show that they are striving to ensure the above outcomes for their customers or risk a failure to provide a fair service. For some, this is a great list to refer to without there being a ‘tick box’ exercise involved. The outcomes make firms genuinely think about the service they’re providing for their customers and give them the opportunity to prove that they uphold fairness in the core of their business models.
For others, the list is still too subjective. What’s deemed fair for one person may not be viewed as fair by another- and this can mean that the principles can’t be upheld or enforced. This has resulted in a feeling in parts of the industry that, while this is a valiant effort in the right direction, the yearly assessments will boil down to another tick box exercise that will have no real consequence for firms who don’t uphold fairness in their policies.
In its ‘Insurance Pricing Practices’ Market Study Report, published in September 2020, the FCA made it clear that pricing was a key marker of fairness for insurers. In the report, the FCA define fair value as being “where there is a reasonable relationship between the overall cost to the end customer and the quality of the products and services”.
This seems simple enough- customers should be charged fair prices for the quality of the product they are purchasing. But for some, this isn’t a key test at all. For example, some customers may be more than happy to pay a premium for a policy with a brand they trust or because they know the service will be great. In their mind, the higher price may feel completely fair.
The International Accounting Standards definition of fair value is “the amount that’s paid by knowledgeable, willing parties”. Some see this as a better definition as it relies on customers understanding what they are buying as well as what they would pay for an equivalent policy elsewhere. If they choose to purchase from a particular company for a higher price, then fairness is still maintained as they are fully informed.
What you need to do if your business is FCA authorised?
To ensure that consumers are fully informed, starting with your sales process makes sense. Are you doing everything you can to ensure that your customers are fully informed about the product in question and what they would pay for an equivalent elsewhere? Are you confident that they are making an informed decision?
To be sure, you need to be asking the right questions to understand their needs, informing them of any obscure areas of cover they may not have thought of or don’t know that they need, and making sure they understand what your product does or doesn’t cover. This may include reviewing your policy documents to make sure they can be understood by the majority of adults, including those with a low reading age.
The next step is to focus on your claims and complaints processes and how they can provide assistance to your team re common misconceptions or misunderstandings they come across – are these highlighted and acted upon by your team?
Once you’ve ensured effective communication and improvement processes, you can move on to making sure you can keep your promise of fairness throughout the customer life cycle- are your claims processes as easy as possible and do you encourage your team to facilitate customers through them? Do your systems give customers the benefit of the doubt or are they likely to assume the worst, resulting in poor outcomes for customers? Do your staff know how to look out for and support vulnerable customers?
These changes, once fully, incorporated in to FCA authorised businesses will provide much better outcomes for leaseholders as consumers.
Head to the Residentsline website for information on all of our products and services or, if you’d like to speak to one of our fantastic, specialist team, give us a call on 0800 281 235.