Approaching monitoring to drive forward good Consumer Duty outcomes: Products & Services

In a previous article, we explored key takeaways from the FCA’s multi-review into insurance firms’ implementation of the Consumer Duty.

Elsewhere in the review, the FCA assessed firms’ approach to monitoring specifically against the four outcomes of the Duty, noting good and bad practice observed across firms.

This article forms the first of a series which will explore how firms can approach and utilise monitoring to drive forward each of the Duty’s outcomes, and evidence this to the regulator, in light of the contents of the FCA’s multi-firm review.

Monitoring the Products and Services Outcome 

“Monitoring must enable a firm to determine whether retail customers are being, or have been, sold products that have been designed to meet their needs, characteristics, and objectives.”

Across all four outcomes, the FCA called for firms to strengthen MI by ensuring it focused on outcomes, rather than process completion, and is sufficiently comprehensive to allow relevant boards or committees to evaluate whether the requirements of the Duty are being met.

The FCA also repeatedly emphasised the need for firms use a wide range of data and metrics to derive meaningful, actionable insights into whether good product and service customer outcomes are being achieved and identify where poor outcomes have, or are at risk of being, achieved. Furthermore, firms must demonstrate that these insights have informed actions taken to make improvements and drive better outcomes.

The following were listed as useful for gaining an insight into product and service outcomes:

• findings from various internal product reviews
• complaints data relating to products and services (including root cause analysis)
• file reviews, quality assurance and/or call monitoring
• claims data, e.g. frequency or severity of claims
• metrics/data on whether products or individual features are being used as intended.
• policy administration data
• data on whether products were performed as expected (e.g. whether claims were paid out as expected, in a timely manner)
• benchmarking information
• various points of customer feedback, surveys, and research
• insights from other parties within the distribution chain

As an example of good practice, the FCA cited a firm who had utilised a wide range of metrics, including claim decline rates, customer feedback, complaints analysis and call monitoring, to determine that policies were not paying out in line with customer expectations. Importantly, the firm used this information to identify where improvements could be made, which resulted in them liaising with a third-party claim handler to improve and monitor standards and drive better customer outcomes in future.

However, across most firms the FCA observed that data related to this outcome was limited and that board or committee reporting was focused heavily on the number and timeliness of product reviews completed, as opposed to the actual findings of these reviews. Consequently, insights into operations and customer outcomes were limited, as was evidence of action taken, or proposed, to make improvements.

Therefore, firms should avoid interpreting completion of, or lack of material findings from product reviews or fair value assessments, as an indication that good outcomes are being achieved. The regulator expects monitoring to be used to effectively and proactively identify risks that a firm is not acting to deliver good customer outcomes and have clearly stated that this requires a varied suite of data and metrics.

Furthermore, firms should demonstrate how the insights derived from monitoring have informed remedial action to improve operations and ensure products and services meet the needs, characteristics, and objectives of customers.

Next Steps 

Throughout the FCA’s review is an overarching emphasis on the need for firms to demonstrate how their approach to, and design of, monitoring links to action taken to adapt and improve operations to align with the ethos of the Duty. Monitoring alone, without interrogation of what the findings reveal and how improvements could be made, is unlikely to be sufficient. Firms should focus on how their approach to monitoring enriches their overall implementation of the Duty and supports good outcomes throughout their operations- and look to evidence this.

All insurers, intermediaries and outsourced service providers should consider the findings of the FCA’s review and use them to identify gaps or weaknesses in their approach to monitoring the outcomes of the Duty. This is particularly important ahead of the first Consumer Duty annual report, which many firms will be in the process of finalising ahead of the 31^st July deadline.

Additional Support 

If you require assistance understanding and actioning the requirements set out by the FCA, or support finalising your annual report, contact UKGI Compliance on info@ukgigroup.com.