The FCA have provided guidance on the measures they expect firms who offer insurance and premium finance to take as part of the support package provided to customers experiencing financial difficulties because of coronavirus.This guidance includes only very minor changes from the draft guidance on which feedback was sought earlier in October.
This guidance was originally introduced back in May, and the most recent iteration expired on 31st October. The latest proposals take effect on 1st November and reflecting the longer-term expected consequences of the pandemic, are now slated to remain in force until varied or revoked.
The guidance applies to regulated firms, including:
- insurance intermediaries (including appointed representatives)
- premium finance lenders that provide credit to fund the payment of insurance premiums in instalments
- premium finance brokers that carry on regulated activities relating to credit granted for the purposes of financing insurance premiums in instalments
Purpose of the Guidance
The aim of the guidance is to prompt firms to help customers, where possible, to:
- Reduce the impact of temporary financial distress
- Ensure they have insurance that meets their demands and needs
The FCA make it clear that the rules are intended to assist people in temporary financial difficulty due to the pandemic irrespective of when those financial difficulties began. A clear statement that there is no (current) time bar on people seeking support under these proposals, assuming the financial difficulties can be attributed to Coronavirus.
Related FCA Rules
As with most guidance, the FCA have made it clear which specific rules and principles they expect to guide firms in their response to this specific set of guidelines. Firms are encouraged to pay particular regard to:
- Principle 6: ‘A firm must pay due regard to the interests of its customers and treat them fairly’
- Principle 7: ‘A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading’
- ICOBS 2.5.-1R: a firm must act honestly, fairly and professionally in accordance with the best interests of its customers
- CONC 7: dealing with arrears, default and recovery (including repossessions)
When Firms Should Act
The FCA wants to see firms looking after customers who are facing financial difficulties. In their papers on Vulnerable Customers, the FCA have made it clear that they expect the Coronavirus pandemic to result in many more customers experience signs of vulnerability and firms should consider that when addressing this financial guidance.
Firms are asked to pay particular focus to:
- customers who have contacted their insurance provider expressing difficulty.
- customers who have missed a payment, but not made contact with their insurer or premium finance provider. In these circumstances, the expectation is for the firm to investigate this matter to determine if it is due to financial difficulty brought on due to the pandemic.
What Actions Are Firms Expected to Take?
First and foremost is the imposition of an expectation that firms will “…not cancel insurance policies solely because of non-payment without first considering actions to support customers who may be in financial distress due to coronavirus.”
The FCA make it clear that they expect firms to effectively communicate with customers about the options available to them under these proposals. There are four specific actions firms should undertake:
- Ensure that specific guidance for customers experiencing financial difficulties is easily available on their websites and any Apps they offer;
- Make it as easy as possible for customers with financial difficulties to contact them, including consideration of the needs of customers with different communication needs (eg unable to use a telephone)
- Review all communications that deal with customers who have missed a payment to ensure that they include specific information about the options available.
- Consider how firms will ensure that where a customer has multiple products with the firm, they have a process to identify this and consider whether action needs to be taken to assess the customers situation in relation to all products, even if the initial difficulties relate only to one product.
Where a firm has identified a customer in temporary financial difficulties as a result of coronavirus it should consider how it will meet its obligations under the FCA rules, including PRIN 6 and ICOBS 2.5.-1R. There are a number of actions that should be considered:
- Re-assessment of the risk profile of the customer. Is the insurance coverage still appropriate? A motor insurance customer may now be using their car less, or a salon owner may have had to close to due tighter lockdown restrictions. If the risk profile has changed this should be reflected in lower premiums and where appropriate reduced coverage (i.e. no need to cover motor insurance for a driver no longer driving overseas due to changes in their job requirements.
- Cancellation fees – If a customer simply no longer requires their insurance product due to changes brought on by the pandemic, the firm should consider waiving cancellation fees. If a pub owner has been forced to close, they longer require insurance for staff and customers, they should not be penalised for cancelling their insurance.
- Transparency – Firms have a duty to their customers to ensure their communication on possible options is clear and accessible. If a customer has a query, the firm should make it as easy as possible for the customer to discuss their individual circumstances.
- Payment terms – firms should consider offering better payment terms (i.e. a reduction in the monthly premium) and deferrals where possible to reduce the short term strain on their customers.
This is not intended to be an exhaustive list and the FCA make it clear that firms should exercise their own judgement in considering other solutions that might provide more appropriate relief to customers.
The FCA expects firms to assist their customers where possible and ensure their ‘demands and needs’ continue to be met, whilst also acknowledging the stresses being placed on many firms through the changes to working practices being forced on them.
As the pandemic continues to cause havoc to individuals and businesses alike, the way your firm responds to customers in this situation is a great opportunity to demonstrate the culture that underpins your organisation and build brand loyalty through empathy and support. Set clear guidelines for the way your firm will deal with such cases and apply them fairly. It is our suspicion that we are still only seeing the tip of the iceberg when it comes to complaints from consumers and businesses relating to the way firms have handled a range of issues arising from coronavirus – don’t let the way you assist customers with pandemic-related financial difficulties become another unwelcome statistic.
If you would like any assistance reviewing the way your firm addresses the issues arising from Coronavirus and customers in financial difficulty, please speak with me or one of the team in complete confidence.
ICSR is supporting the Insurance Community initiative 'Computers4Schools'. Find out more about the way you and your organisation can support this by watching this video narrated by Huw Evans, Director General of the ABI.