Treating Customers Fairly

Treating Customers Fairly:
Some TCF considerations for
the short-term insurance
Presentation for the Insurance Conference
Sun City
June 2012
By: Leanne Jackson
Head: Treating Customers Fairly
Financial Services Board
Treating Customers Fairly
• The FSB piloted a TCF self-assessment tool in late
• The exercise helped identify future TCF focus areas, for
both industry and the FSB.
• A detailed feedback report was published in December
• 22 short-term insurers and 5 underwriting managers
Some particular considerations for the short-term
insurance industry can be drawn from the pilot
feedback report (and other feedback) – with good
practices noted too, although not verified.
Treating Customers Fairly
An informal, implicit approach to TCF –
strategic and governance implications not fully
In this regard, there is no notable difference between short-term insurance
and other financial sectors
Limited board and management appreciation of strategic implications - TCF
seen almost entirely as a customer service matter
Unclear executive ownership and inconsistent application across groups –
ownership often allocated to compliance, risk or other support functions
Assumption that TCF is implicit in culture, with a “wait and see” attitude to
structured implementation
Market conduct related risks not clearly identified – seen purely as part of
operational risk (often compliance / regulatory risk)
Outcome 1: Customers are confident that they are dealing with firms where
fair treatment of customers is central to the firm culture.
Treating Customers Fairly
Short-term insurance seen as inherently “low
risk” for retail customers
Strong view that there is low / no risk of products being wrongly
Product value proposition seen as simple and self-evident
Product designed to fit distribution model, rather than the other way
Stated focus on “value for money” as an aim, but not clear how this is
tested other than by price competition – with risk of inadequate focus
on other features
Limited focus on TCF for bundled, loyalty and “add-on” services –
including but not limited to consumer credit insurance products
Confusion re responsibility for product targeting in binder models:
• insurers: “we only underwrite, we don’t design the product”
• underwriting managers: “we use the insurer’s licence but we design
our own products for our target market”
Outcome 2: Products and services marketed and sold in the retail market
are designed to meet the needs of identified customer groups and are
targeted accordingly.
Treating Customers Fairly
Emphasis on up front, technically accurate
• As for other sectors, there is limited customer testing of product
information material – and a strong legal and technical emphasis
• The complexity of some short-term concepts is under-estimated
• Call centre models sometimes rely on customer’s assurance that
they have understood
• Inconsistent use of renewal communications to highlight changes,
risks of inaction, available options
• Generally, much greater emphasis on up front information than post
sale or ongoing information
Outcome 3: Customers are given clear information and are kept
appropriately informed before, during and after the time of contracting.
Treating Customers Fairly
Different challenges for direct and
intermediated distribution models
• No-advice models assume that products are simple, do not require
advice but customers will ask for advice if they need it (“but very few
ask for it”) – more emphasis on ensuring advice is not provided than on
checking whether it should be
• For intermediated models, strong reliance on FAIS compliance – but
widely divergent approaches to ensuring product knowledge of
independent intermediaries, and to whose responsibility this is
• In binder models, confusion as to who “owns” the intermediary
relationship – complex value chain creates risk of customer not
understanding who is responsible for advice vs product performance
• For intermediated models, almost no view of complaints as a potential
mis-selling indicator – some insurers stated that they do not get any
advice related complaints, as these are “fielded” by the intermediary
• Product comparison services present both potential TCF risks and
Outcome 4: Where customers receive advice, the advice is suitable and6
takes account of their circumstances.
Treating Customers Fairly
Customer satisfaction and retention as TCF
• Strong emphasis on customer satisfaction as a TCF indicator – and
a marketing tool
• Some confusion that this Outcome only relates to investment
• Limited or inconsistent insight into customer experience through
outsourced service providers – SLA’s used as the main control
• More emphasis needed on proactively alerting customers to risks of
inaction – often seen as only the adviser’s job
Outcome 5: Customers are provided with products that perform as firms
have led them to expect, and the associated service is both of an acceptable
standard and what they have been led to expect.
Treating Customers Fairly
Claims as the short-term insurance “shop
• Short-term insurance, by its nature, has a more advanced focus on
quality of claims handling than other sectors – both by
intermediaries and product suppliers
• However, focus still tends to be on speed and efficiency rather than
quality of outcome
• As for other sectors, complaints – and redress – are approached
reactively and typically only for those who complain
• TCF controls in relation to product switching (replacements) are
Outcome 6: Customers do not face unreasonable post-sale barriers to
change a product, switch provider, submit a claim or make a complaint.
Treating Customers Fairly
Other general considerations
Short-term insurers, intermediaries and service providers should also
take note of the general, overarching TCF considerations flagged in the
self-assessment feedback report.
In particular:
• The “hard” requirements of the TCF culture framework
• The need for TCF management information that measures, records
and responds to outcomes – i.e. over and above profitability,
process efficiency and productivity measures
• The need to allocate TCF responsibility appropriately throughout the
product life cycle and product value chain
• The need to identify TCF risks and develop controls that are
appropriate to your particular business model and strategy.
Treating Customers Fairly
Thank you
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