New guidance from the regulator points to greater monitoring and oversight of firms’ treatment of vulnerable customers as part of its supervisory approach – will this change be welcomed, or viewed as another regulatory burden?

By Editor Katie Scott

This week, the FCA unveiled its updated guidance for financial services firms on how they should treat vulnerable customers.

This demographic has definitely been in the spotlight more since the onset of the pandemic, as the definition of vulnerability has been more thoroughly unpicked by insurance firms to reach the understanding that vulnerability can be so much more than just age or health based.

Katie Scott_bw_path

Katie Scott

In fact, in December, I asked Insurance Times readers whether there was even such a thing as a ‘non-vulnerable’ customer nowadays.

Speaking at the ABI’s annual conference on Tuesday, held virtually, the FCA’s director of consumer and retail policy Nisha Arora talked through some of the thinking behind the new guidance, which is based on the results of two consultations, conducted in July 2019 and July 2020.

What struck me most about the updated guidance was the emphasis on the regulator’s monitoring – it seems the FCA is keen to ramp up its oversight on the treatment of vulnerable customers in the wake of new and varied harms that have affected consumers since Covid-19 arrived.

Arora identified this theme as one of the main differences between the new guidance and its predecessors.

She said: “We do not want this guidance to sit on our shelves, we don’t want it to sit on your shelves either. We want this to applied in practice. We’ll be doing that ourselves.

“We will be monitoring and asking firms for information about how they’re doing, their progress and how they’re demonstrating they’ve achieved those outcomes.

“We’re integrating this into our supervision discussions. When your supervisors come and have discussions with your firms, they’ll be talking about vulnerability at the same time. It’s not a separate thing – it’s part and parcel of our thinking and it should be part and parcel of firms’ thinking too.”

Although this guidance is obviously a good thing for the end customer and will hopefully help improve the access to and understanding of insurance products, it did remind me of a conversation I had earlier this year with Branko Bjelobaba, principal at consultancy Branko.

He was concerned about “the amount of new stuff that the FCA is expecting firms to comply with” and how this could have a detrimental effect on firms, as they could potentially spend more time responding to the FCA than completing business.

Granted, Bjelobaba added that “where new stuff has a direct effect on consumer protection, don’t hold it back”, and I think we would both agree that guidance on vulnerable customers would fall into this camp.

However, Chris Fitch, vulnerability lead at the Money Advice Trust, told delegates on Tuesday that much of the FCA’s guidance here is simply a mirror that is reflecting the good work and best practice that many firms are already doing.

Despite this praise, he did also note that insurance has to get better at creating disclosure environments so that customers feel comfortable telling their providers about their vulnerabilities in order to access any applicable support. He added that customers’ relationship with their insurer can be “quiet” and that “more touchpoints” are needed.

This will be even more pertinent as we progress further through the pandemic – Fitch noted that more harms that cause vulnerabilities will be “unmasked” as various support programmes end, for example the government’s furlough scheme.

I also agree with the ABI’s director of regulation Charlotte Clark, who said on Tuesday that vulnerable customers are not a “homogeneous group”.

The FCA’s focus on vulnerable customers should be applauded, however I am also interested to see how this increased level of monitoring will pan out and whether it will affect insurance firms.

Presented alongside the recent business interruption test case action, the FCA is most definitely in policyholders’ corner.