Modern Insurance Magazine Issue 62

INTERVIEWS
WITH MATT BREWIS
consolidating their books and outsourcing this type of work;
we’ve seen cyber incidents in some cases, which has naturally
had a significant impact on customers. We’ve also seen service
standards drop when firms have been migrating data, resulting in
claims taking longer than usual to pay out and affecting vulnerable
customers who are in the process of grieving the loss of a loved
one.
We’re pushing firms on all of these areas, and demonstrating where
we want to see improvements made. The recent intervention we’ve
taken towards GAP insurance is really the first example of the type
of action that the industry is going to see more of. We’ve got a
whole range of tools that we can use to act against firms who don’t
comply, and I hope these consequences will move the market in the
right direction and show that we’re serious about these changes in
the long term.
Back in Spring, the FCA specifically commissioned
an anonymous survey of 1,230 firms to establish the
Q industry’s preparedness and attitudes in respect of the
new Consumer Duty. What were your key findings from
this, and how do those compare with reality now that the
new Consumer Duty has come into play?
A
The FCA supervise around 55,000 firms, and so we’re
somewhat outnumbered when it comes to being able
to spend an adequate amount of time with each one!
Therefore, the purpose of this survey was to ascertain preparedness
for the Consumer Duty from smaller firms specifically. We did this
anonymously and via a third party to encourage honesty.
The adoption of the new Consumer Duty is a gradual journey;
even some of the big firms are still embedding it. We need to keep
pressing in order to push for these higher standards. The results of
the survey indicated that 64% of firms would be fully compliant by
the July deadline, with 23% displaying confidence that they would
be mostly compliant by this time. I don’t believe these figures
reflect the reality we’re faced with at the moment, and that’s why
it’s really important for us to keep pushing. We’re dedicated to
identifying firms that are defying the regulations. Some firms are
nearly there; some are burying their heads in the sand, and part of
our task right now is to find them.
How have the FCA supported firms in addressing pressure
points and challenges?
Q
A
Well, when it comes to those firms who are really trying,
we’re happy to give as much guidance as possible to ensure
they get it right. The aforementioned example of GAP
insurance illustrates this point; regulation for General Insurance
has been in place for years already. Low value products that exist
more for the financial gain of the distribution chain are a problem,
and often delivered at the consumer’s expense. Our latest letter
addressing this is full of examples of products that we don’t like the
look of, and we’re perfectly clear in our explanation of how we’d
like insurers to address these issues - as well as details of what the
consequences will be if they don’t.
We’ve also taken time to highlight our concerns around
Premium Finance, and the ‘poverty premium’ which profits from
policyholders who are unable to pay their annual premium upfront.
Consumers should not have to pay 30% more for their car or home
insurance if they have to pay monthly, and we’ve made our stance
Matt Brewis,
Director of Insurance at the Financial
Conduct Authority (FCA)
on that perfectly clear in our latest guidance. Where cars have been
written off, we’ve identified instances where a number of firms
have been paying out claims that do not cover the full value of the
car, and they are now being forced to make reparations for this in
retrospect. Executives that commission internal reviews to identify
and combat these issues within their own claims departments are
displaying the right behaviour, and I would recommend that others
should follow suit.
Q
The obligation to act in ‘good faith’ has been the cause of
much comment in the lead-up, and also in the delivery of
these new regulations. Is there now widespread clarity in
terms of the way that this is being interpreted, or is this
aspect still a work in progress?
Whilst the rules are clear, of course there’s potential for
discrepancy in how these are interpreted. Some people
A prefer to work to general principles and others want to know
the exact boundaries for compliance, so as a regulator, it’s difficult
to find a balance that suits everyone.
I think this is one of those areas where case law is going to build
up over time. I know how I interpret the guidance, and the basic
sentiment really just involves putting the best interests of the
customer at the heart of all products and services. We want to
achieve the right outcome for customers on every occasion. We’ll
continue to work closely with the Financial Ombudsman, and they
will still be adjudicating complaints as we follow up with individual
firms. This will build a precedent as we move into the new era of
Consumer Duty. The basic message: do the right thing by your
customers. Would you buy this product as it exists in its current
form, and if not, what are you doing selling it?
Q
A
The FCA has introduced Principle 11 of the new Consumer
Duty, which requires firms to notify you if they become
aware of an organisation within the distribution chain
that does not comply with the new regulations. Whilst
the principal of this works in theory, how will the FCA be
upholding this in practice?
Whistleblowing and intelligence from firms will always be
received confidentially, and in many ways, we do rely on
this type of information when it comes to enforcement.
There are regulated elements of the distribution chain juxtaposed
with other aspects, like Credit Hire, which fall outside of this remit.
However, insurers and brokers choose to work with these firms
and control how that chain of distribution works. If behaviour from
an unregulated firm is problematic and not compliant with the
Consumer Duty, it still falls to the insurer to take ownership of that
process.
One of the key regulatory components involves the avoidance of
creating foreseeable harm in products and services, and Credit
Hire is a clear-cut example. Outsourcing claims services to an
unregulated industry and passing the buck won’t make the problem
go away; it’s really important that this issue is dealt with to maintain
the principle of acting in good faith. Every part of the distribution
chain should be working together to achieve this mutual goal, and
anything else is simply bad for business.
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