The FCA has released a Policy Statement setting out its finalised guidance for the insurance industry on supporting customers in financial difficulty. Sarah Drew, Associate in our Financial Services Regulation team, provides an overview of the guidance and discusses the importance of recognising vulnerable customers and ensuring they receive good outcomes.
Borne out of the cost-of-living crisis, the FCA has had a keen eye on how regulated firms are treating their vulnerable customers. In this new insurance industry focused guidance (which will be inserted into the Insurance Conduct Of Business Sourcebook at section 2.7), the FCA has made its position clear and is encouraging firms to think about the challenges that customers are facing, especially given that poorest households are feeling the effects of price rises most deeply. The guidance is in place to enhance consumer protection for insurance customers and sets out requirements for firms to ensure they are providing good outcomes for vulnerable customers. It is designed to assist firms, with the FCA confirming it will “provide clarity to firms about how they can comply with ICOBS 2.5.-1R (the customer’s best interests rule) and the Consumer Duty obligations and provide appropriate support to customers in financial difficulty”.
The guidance reasserts much of what the Consumer Duty says under Principle 12 (firms must act to deliver good outcomes for customers), and deals with trigger points, which should identify when a customer is in financial difficulty. The guidance also discusses options that firms should think about offering to customers in financial difficulty (such as reassessing customers risk profile, offering a lower priced product). It also sets out the position on signposting, confirming that firms should take reasonable steps to ensure customers are aware of the support that they may be able to access (with an acknowledgment from the FCA that this does not need to be individualised, but potentially targeted at groups of customers, such as those in financial difficulty). As is the case with Consumer Duty, the guidance does not relate to contracts of large risk.
The guidance will come in to force on 31 July 2023, the same operative date for the Consumer Duty. This is a clear message from the FCA that firms really must be putting the needs of their customers first and ensuring that they can evidence the support that is available to customers when they are experiencing difficult times.
If you would like to discuss the application of this new guidance to your business or the upcoming changes under the Consumer Duty, please get in touch with our Financial Services Regulation team, who would be happy to help.