How Can a Firm Avoid Causing Foreseeable Harm?

In last week’s article, we looked at the concept of harm in the context of financial services and considered instances of where harm could occur. This week’s article focuses on practical solutions that firms can implement so that they can act prudently and reasonably when anticipating and reacting to potential harms.

Firms should seek to avoid causing foreseeable harm at all stages of the customer journey. This can be dealt with and measured according to the FCA’s Four Outcomes under the Consumer Duty, namely:

(1) Products and Services and (2) Price and Value

The needs of the customer should be at the heart of the design of a product or service. Firms should identify and recognise a target market for a product or service. The value and price of the product should be tailored according to the characteristics of that target market.

Fundamentally, firms need to consider how the cost of the product will deliver value to different customer groups. To determine this, a firm should carry out product testing to establish how, qualitatively and quantitatively, the product will function.

There should also be regular review or fair value assessments of products and services, to reasonably ensure that they continue to provide the intended value to the target market. Appropriate action should be taken if the product is found to be falling short.

For general insurance brokers, provided firms already adhere to the requirements in the Product Governance Sourcebook (PROD), they should be able to demonstrate compliance with this outcome.

(3) Consumer Understanding

Harm can also arise through misunderstanding in customer communications. To avoid this, firms should strive to ensure that communications are clear. Key risks should be disclosed and prominently signposted in a way that the intended audience is likely to understand.

Firms should also consider customers’ communication needs throughout the product lifecycle. For instance, what are the communication needs ahead of the sale, at the point of sale, at renewal or at the time of a claim?

Information needs to be ‘flagged’ to consumers about things which could negatively impact them, and appropriate ‘calls to action’ should be included to allow the consumer to avoid this.

Communications should be tested to reasonably ensure that the target audience will understand the message. Fundamentally, the consumer should have all the information they need, in an understandable and accessible format, to allow them to make an informed decision.

(4) Consumer Support

Good customer service is a great way to avoid consumer harm. A firm that adopts flexible approaches to deal with the diverse needs of customers, particularly vulnerable customers, will be able to reasonably ensure a customer is supported through key parts of the product lifecycle. This includes not rushing customers into making decisions and instead giving them the opportunity to develop their understanding and review their options.

A proactive and efficient approach to dealing with customer issues and complaints is also an effective way of preventing harm developing or escalating; a way to rectify issues; and an important method for gathering data on emerging issues or potential future harms.

RWA has launched a Consumer Duty gap analysis to help firms implement the new rules and guidance. If you would like more information about this or require any assistance in relation to the new Consumer Duty, please contact your RWA Business Manager. Alternatively, get in touch via email at helpdesk@rwagroup.co.uk or call 01604 709509.