Understanding Vulnerable Customers in the Insurance Industry

Vulnerability is complex. It is driven by a variety of different factors from personal life experiences to a global catastrophe. More concerning, vulnerability is currently increasing. According to King’s College London, 60% of Britons have reported that the cost-of-living crisis is negatively impacting their mental health. In addition, 23% have claimed to be losing sleep because of their worries about rising costs. This means there is a higher chance that the customers that insurance providers are dealing with are more likely to have vulnerability characteristics. 

The treatment of vulnerable customers is of paramount importance, regardless of industry and service. However, as an industry that may face a large number of vulnerable customers it is worth refreshing our minds on how to support them. The FCA has set frameworks to support companies in identifying vulnerable customers. This article aims to shed light on the definition of a vulnerable customer, the key drivers of vulnerability, and the principles and strategies employed by industry players to engage with and assist these individuals.  

The FCA defines a vulnerable customer as someone who, due to personal circumstances, is particularly susceptible to harm, especially when a firm fails to act with appropriate care. Vulnerability, in this context, is considered a spectrum of risk. Vulnerable characteristics fall under four key categories: 

1. Health: Conditions or illnesses affecting day-to-day tasks.
2. Life Events: such as bereavement, job loss, or relationship breakdown. 
3. Resilience: Low ability to withstand financial or emotional shocks. 
4. Capability: Low knowledge or confidence in managing money, financial capability, and low capability in other relevant areas. 

The following list is a further categorisation of what type of customer may fall under a category. While not all individuals in these groups may be vulnerable it is always worth considering individual circumstances when potential vulnerability is identified. The groups include: 

• Customers with communication difficulties (learning difficulties, non-native English speakers, dyslexia).
• Those with a reduction in physical or mental capacity. 
• Customers facing health issues, whether physical or mental, severe, or long-term. 
• Individuals experiencing a sudden diagnosis of serious illness for themselves or close family members. 
• Customers with challenging personal circumstances such as financial difficulties, bereavement, caring responsibilities or redundancy. 
• Age-related vulnerabilities, especially among older and younger individuals.

When considering vulnerability within the insurance industry, specifically a claims department, it is worth preparing that a significant proportion of calls may involve vulnerable customers: “life events”, a customer who has been involved in a motor vehicle accident has undergone a life event and “…challenging personal circumstances…”. Therefore, procedures must be in place to engage with vulnerable customers accordingly. However, it is also important not to generalise and assume every customer is vulnerable and to consider individual circumstances for each conversation.

It is worth noting that some vulnerable customers may have a potentially lower understanding of financial products and the way they are sold. These individuals may also be digitally excluded, less likely to engage with insurance communications, and may face challenges in navigating sales, renewals, and claims processes. Here are some key principles to adhere to: 

• Immediately record the identification of potential vulnerability.
• Provide additional opportunities for customers to ask questions and seek clarification. 
• Continuously confirm the customer’s understanding of the information provided. 
• Assess if there is anyone present who can assist the customer, making arrangements for future discussions if necessary. 
• Offer the opportunity for customers to complete transactions after a period of further consideration. 

In the insurance industry, recognising and supporting vulnerable customers is not just a legal requirement but also an ethical obligation. By understanding the characteristics and drivers of vulnerability, firms can tailor their approaches to ensure fair treatment and appropriate support. Continuous efforts to identify and engage with vulnerable customers are crucial in maintaining compliance and fostering a culture of care within the insurance sector.