Are you helping your customers?

Many are concerned that their products do not provide adequate cover or will keep them protected throughout the duration of the pandemic. There are also those who are in financial difficulty because of the coronavirus, making it difficult to afford keep up with payments of premiums or premium finance loans.

To address these concerns, the Financial Conduct Authority (FCA) have announced a series of temporary measures that require firms to consider what options they can provide to customers[1]. These measures will come into force on Monday 18 May 2020 and will be reviewed in the next three months in the light of developments regarding coronavirus, with revisions if appropriate. This is an addition to the guidance provided on the fair treatment of customers[2] on how to assist with the following:

• identifying customers that need financial assistance
• reviewing insurance cover
• pricing of future products
• underinsurance
• return of premiums
• where to reduce cover
• reduction of premium from claims pay-outs
• support for customers paying annually
• premium finance repayments
• creditworthiness

Some of the action firms can take now include:

• Re-assessing the risk profile of the customer. It might be that the risk profile of some customers has changed because of coronavirus. For example, some motor insurance customers might not be using their vehicle at all or might no longer be using it for business purposes, and customers could potentially be offered materially lower premiums.

• Considering whether there are other products the firm can offer which would better meet the customer’s needs and revising the cover accordingly. It might be that a customer’s needs have changed as a consequence of coronavirus. For example, a motor insurance customer might no longer need associated add on cover such as legal expense insurance, key cover or other products, or could be moved from fully comprehensive cover to third party fire and theft. There may also be businesses which do not need certain covers for a period.

• Working with customers to avoid the need for cancellation of necessary cover such as by considering payment deferrals as set out below. Where customers in these circumstances determine that it is in their interest to cancel their policy, without encouragement or suggestion from their provider, firms should waive any cancellation fees where the firm needs to do so to ensure it is treating its customers fairly. Firms should also consider fair treatment of customers when assessing new premiums for customers who cancel and then return to the insurer.

• In addition to waiving cancellation fees, firms should waive any fees associated with adjusting a qualifying customer’s policy in line with the assessments outlined above.

• Payment deferrals or suitable alternatives such as: accepting reduced repayments, or rescheduling the term; waiving missed or late payment fees; or permitting a customer to amend their repayment date without any cost.

Speaking about the new guidance, Mark Turner, Managing Director at Duff & Phelps’ Compliance and Regulatory Consulting practice commented:

“Today’s announcement demonstrates the FCA’s expectations for insurance firms to be proactively engaging with customers regarding their cover. Firms cannot rely on customers identifying inappropriate cover themselves. The FCA gives the example of comprehensive car insurance for a car that cannot currently be used. But also, there may be cases where customers are underinsured, such as those with homes that might be vacant for long periods of time.

For the insurance sector, consumers face potential harm from payment terms on policies, as well as the long-term risk of becoming uninsured and suffering losses as a result of not being able to keep up with their policy premiums. It’s critical that firms assess a customer’s risk of financial distress in a dynamic way - customers that were not even on the radar of vulnerability two months ago may now be exposed to serious financial difficulty.”

These new objectives from the FCA are designed to protect consumers by providing them with temporary support in the light of the current exceptional circumstances arising from the coronavirus. Any new developments over the next three months will be addressed accordingly while this temporary support comes into action.

[1] https://www.fca.org.uk/news/press-releases/fca-confirms-measures-insurance-customers-coronavirus

[2] https://www.fca.org.uk/publications/finalised-guidance/coronavirus-customers-temporary-financial-difficulty-guidance-insurance-premium-finance