In a previous article, we explored key takeaways from the FCA’s recent report which sets out the results of the regulator’s December 2023 review of larger insurance firms’ implementation of the Consumer Duty.
Elsewhere in the report, the FCA evaluated firms’ approach monitoring each of the four outcomes under Duty and noted good practice and areas of improvement.
This weeks’ article is the second in a series exploring key takeaways from the FCA’s multi-firm review findings and how firms can approach monitoring to drive forward each of the outcomes under the Duty and evidence this to the regulator. Having discussed Products and Services last week, this week’s article will discuss how firms can approach monitoring in relation to the Price and Value outcome.
Price & Value
“Monitoring must enable a firm to determine whether the products that retail customers purchase provide fair value, and that appropriate action has been taken to address products identified as not doing so”
Across all outcomes, FCA noted that firms focused too heavily on the number and timeliness of value assessments completed, rather than whether meaningful insights were derived from these.
Again, reporting of monitoring under the price and value outcome was deemed ‘sparse’. Specifically, the regulator noted that key product performance data, e.g. loss ratios or profitability, was missing from reporting to boards or committees, and that many firms did not explore all aspects determining customer prices, e.g. commission, charges, operational costs in running the product, or key aspects of value, e.g. the use of overall product benefits.
The FCA reiterated that, to effectively monitor and evidence whether different customer groups are achieving value and derive meaningful insights which allow the firm to act to improve this outcome, all aspects that affect the price a customer receives must be monitored, and a wide suite of metrics is required. Examples of useful metrics include:
As an example of good practice, the FCA cited how one firm used a range of data, including claim ratios, claim decline rates, customer feedback and complaints analysis, in relation to ancillary products, to identify policies which may not be offering fair value. Consequently, the firm took actions, such as reducing the price and increasing the level of policy benefits, and monitored changes made to determine whether they led to an improvement in the customer outcomes achieved.
Even where firms employed a wider suite of MI to assess the price and value outcome, the FCA noted this often lacked the granularity to sufficiently evidence that value was achieved across different customer groups, i.e. across a range of ages, or customers with characteristics of vulnerability.
The report also warned against overreliance on niche complaints data, such as complaints explicitly about the price and value of a product; the frequency and nature of such complaints may be insufficient to allow firms to gain meaningful insights into customer outcomes. For instance, if a customer has chosen not to make a complaint, or is unaware that they have experienced poor value, an issue could go undetected if firms rely on this data as an indication of whether good value has been achieved. Complaints data should not be considered a measure of customer outcomes without any detail of root cause analysis to determine detailed insights which would enable firms to act to improve outcomes.
Some firms reportedly set loss ratio tolerances at the same level for different products, despite actual loss ratios of the products being vastly different, meaning some products had loss ratios unlikely to ever fall below a level which would prompt investigation or action. To effectively monitor customer outcomes, standards or tolerances must be scrutinised and set at meaningful levels.
Additional Support
UKGI can assist firms with measuring, monitoring and evidencing customer outcomes under Consumer Duty. If you have any questions, or need any support, we will be happy to happy to discuss how we can assist, contact UKGI Compliance at helpline@ukgigroup.com or on 01925 767888.
About the author
Rebecca Matyear
Rebecca recently joined us in 2024 as a Senior Content Writer and has experience researching and creating multimedia content. With a keen interest in current and emerging industry affairs, Rebecca responds through a critical lens and, by promoting thought and discussion, aims to increase awareness of UKGI’s work.
Get UKGI Insight In Your Inbox
Regular business news and commentary delivered direct to your inbox each week. Sign up here