PROTECT

LEGAL AND REGULATORY REVIEW

JULY 2013

Oh No!!!!

Lunch 1.30

The Good News . . .

It was only 8 weeks since I got you all nicely up to date

So an “update” should be nice and quick

Lunch 1.30

And the Bad News?

A lot can happen in 8 weeks!

Why?

Because FCA is on the warpath and it has only one thing in mind . . .

The Consumer Protection Objective

“To secure an appropriate degree appropriate degree

of protection for consumers”

FCA will:-

Expect you in your:-

Product design

Product name

Product content

Product marketing . .

Even the environment in which you offer the product

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To set and then fully meet . . . .

“consumer expectations”

“Consumer Expectations”

These are only partly under your control

Consumers are being encouraged on all sides to increase their expectations

The lives they are leading are changing rapidly, and

The regulator expects you to change with them . .

When are those expectations tested?

Whenever the customer makes a claim

Thematic Review into Claims Handling

Announced by Martin Wheatley at the BIBA conference on 15 May

“we are talking about enormously stressful periods in people’s lives. Touchstone momentsTouchstone moments”

“It would be very difficult, if not impossible, to defend any company if it was found to be aggravatingaggravating these experiences by dragging its heels − or trying to wriggle out of its responsibility to pay legitimate claims. We buy insurance for peace peace of mindof mind - not for a painful scrimmagea painful scrimmage with insurers”

What will the Review cover?

“Themes across the general insurance market but with a particular focus on household and travel claims”

“We will conduct it in partnership with firms, as well as consumers”

“I want my team to obtain evidence directly from claimants on how they have been treated”

What is FCA looking for?

“Does customer experience vary according to whether they bought insurance directly, through a broker or through an affinity scheme?

How good are insurers in explaining up front what will happen when a customer makes a claim? How well do they then keep them informed of progress?

Are payments being made in a fair and consistentfair and consistent way when they are due? Are companies acting ethicallyethically towards their customers? Is the claims department as well resourced as the sales team?

Findings, and final recommendations, are expected by Q4 2013

(c) Paginator Limited 2013

What to Expect?

A very different approach to that from the FSA

Much less technical – and generally less collaborative

Simplistic demands imposed on the industry but expressed in language addressed to consumers

The changes demanded will appear unarguable - but may well gloss over core commercial issues affecting your business

Why do I know this?

Because of TR 13/2

Published late last month

What did it have to say?

Plenty of basic sensible stuff . . .

Product governance in firms is not “always” effective

“Aspects” of products were not designed to meet customer needs

Product terms were not “always” clear and fair to consumers

“Some examples” of poor sales practice

“In some instances” claims handling was slow and unfair

Some firms were not adhering to complaints handling rules

So - the conclusion is that there is . . .

SomeSome ineffectiveness, with somesome aspects of somesome products not being well designed, and not alwaysalways being clear and sometimessometimes being sold badly with instancesinstances of poor claims and complaints handling

Surely that means . . . .

There is a lot of . . . .

effectiveeffective, well designedwell designed, clear and well sold clear and well sold mobile phone insurance out there which, in most instances, in most instances, delivers delivers to consumers at claims stage?

So that is good news!

Headlines

The Review addresses some fundamentals very well . . . .

Senior Management

Complaints and other feedback

Operational /Product

shortcomings

Customers

Identify risk, compliance and cultural issues

Learning from complaints and

feedback

Re-designing products/services to

meet customer needs

Correcting operational

shortcomings

But look at this . . . .

Is that a professional way for a regulator to approach . . .

a key issue facing the general insurance industry in 2013?

How does an insurer define the risk covered, and set consumer expectation, in a world where consumers are no longer expected to read documentation or retain even basic understandings?

Put another way FCA should be addressing with the industry . . . .

Whether the traditional insurance policy is

Fit for purpose?

Vital that . . .

Firms and PROTECT engage with FCA to ensure that a desire to achieve “good consumer outcomes” is undertaken without FCA “showboating” to the consumer lobby

There must be dialogue (not bullying) to avoid the industry being put into impossible positions – and ultimately withdrawing from cover, because

If consumer expectations are constantly and unrealistically raised the outcome can be . . .

Disastrous – ask the . . .

Now I have that off my chest . . .

What else?

Some more on the Consumer Insurance (Disclosure and Representations) Act 2012

Some matters European

A bit about incentives, and

News of more consumer rights on their way

and . . .

Then lunch!!!!

Consumer Insurance (Disclosure and Representations) Act 2012

The Act tells us that you can’t expect the consumer to tell you things unless you ask him/her about them

You can’t turn what you are told into a term of your insurance

FOS have issued a Technical Note which explains FOS’s approach following the Act (no change but useful)!

FCA are consulting on changes to ICOBS to reflect the new law

Matters European (1)

IMD 2 – will eventually arrive

Lots of ticking bombs e.g. affecting claims, tying, commissions . . .

Damage and debris for your business will depend on matters of a few words here and there (still to be resolved)

Keep it well on your radar even though implementation likely to be up to three years off

Matters European (2)

Protection Insurance

Conflicting movements within Europe

Some concern to “learn from” the UK (sales experience)

However a fundamentally different attitude to the value of payment protection insurance . . .

Driven by EU initiatives designed to give responsible consumers the confidence to borrow

Incentives

FCA have announced:-

“further work on whether firms are now managing the risk of mis-selling, driven by financial incentive arrangements in place for their staff”

“further work” is to see if you are adhering to FG13/01 issued by FSA in January 2013

In that FSA reported 20 out of 22 firms assessed by FSA had features in their (staff sales) incentive schemes that increased the risk of mis-selling and were therefore in breach of the Principles for Business – and thus unlawful

What should you be doing? Checking that:-

products are sold to meet the needs of consumers, not driven predominantly by financial incentives and profits;

you properly identify, consider (and understand) how incentive schemes might encourage staff to mis-sell and put in place effective systems and controls “to adequately manage the increased risks of mis-selling arising from incentive schemes”;

“routine monitoring” of incentive schemes is not sufficient – nor are customer feedback surveys. You must have a full and effective risk based monitoring which looks for problems and corrects them

You are taking action to address any inadequacies

God help you if you don’t!

And be careful . . .

Risks to customers from incentive schemes may also arise in areas such as complaints handling, claims processing and even customer retention

The Consumer Rights Bill

Announced in the Queen’s Speech

A huge consolidation of consumer protection law including bringing the UTCCR into the new Act

Not just a consolidation of UTCCR – but introducing Law Commission recommendations on extending the law to cover the fairness of “core terms”

And that (with FCA’s agenda - and powers) is . . . .

DYNAMITE!!

So when I show you this . . .

Senior Management

Complaints and other feedback

Operational /Product

shortcomings

Customers

Identify risk, compliance and cultural issues

Learning from complaints and

feedback

Re-designing products/services to

meet customer needs

Correcting operational

shortcomings

You not only need to think . . .

about whether your current products are meeting (and designed to meet) consumer need and expectations; or

Think about the £2.8 million fine just given to PAS for failures to analyse root causes for complaints . . .

but also about what sort of product will meet and/or set consumer need and expectations in the future

Because you can be sure that this . . .

If these thoughts are valuable . .

Like many in this room . . .

You can get . . .

These insights

Top quality legal and regulatory commentary

“Top up” niche legal, regulatory and compliance support, and even

A shoulder to cry on . .

On line . .

By e-mail or

Directly from me . .

Thank You

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