Are we asking the wrong question when we ask for clarity on who exactly is vulnerable? 

By deputy editor Yiannis Kotoulas

Ever since the FCA made clear that it was focused on outcomes for vulnerable customers back in 2017, the insurance market has been scratching its head somewhat. 

Not because it expects to be able to ignore the need to go above and beyond for certain customers – that much is baked into the DNA of the sector – but because it has remained frustratingly unclear what exactly constitutes a vulnerable customer. 

Yiannis headshot serious 1

In its Guidance for firms on the fair treatment of vulnerable customers document, released in February 2021, the regulator defined this group as those “who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care”. 

As you can tell, this definition is not exactly brimming with the sort of prescriptive clarification that many have been crying out for. 

By various measures, over half of the customers that the UK insurance sector serves could be defined as vulnerable by this definition. In 2023, Watermelon Research posted results of a survey that showed 56% of 3,500 surveyed UK customers would be classified as vulnerable under the regulator’s Consumer Duty rules. 

And in the FCA’s own Financial Lives research from October 2022, it found that 47% of customers demonstrated one or more characteristics of vulnerability – which it defined as low financial resilience, poor health, recent negative life events and low capability.

Taken at face value, this figure does not sound right – if over half of customers require some sort of special dispensation, then how special is it? 

After this point had been made to me by various people within the market, I took the chance to ask the FCA for some clarification. 

The right question?

At this year’s Biba Conference 2024, the broker body’s regulation director David Sparkes sat down with FCA chief operating officer Emily Shepperd to discuss what was coming down the line. 

You can read more about that here, but Shepperd emphasised that “vulnerable customers is an area that [the FCA] is particularly trying to keep an eye on”. 

However, when I asked what exactly constituted a vulnerable customer, Shepperd said: ”There are all sorts of tests and measures [to define vulnerability] and I could write you an essay on it, but that would take me the next 30 minutes to describe, so I will come back to you on it.” 

I was left slightly miffed by this response. Surely it’s relatively easy to describe what constitutes a vulnerable customer? As a journalist, a non-committal response like that either means that you’ve asked the right question, and someone is trying to avoid answering, or it means you’ve asked the wrong question. 

In this case, I believe it may have been the latter. As it turns out, asking who is a vulnerable customer somewhat misses the point of the FCA’s focus on the issue – it is more about how the insurance sector is set up to respond to customers who are vulnerable at the point of contact. 

Think outside the box

Following up with me after the conference, Sparkes explained: ”Vulnerability isn’t one of those topics that is nicely squared off in a box – you’ve got permanent vulnerabilities like disabilities, but you also have transient vulnerabilities like a bereavement, so you have to take the situation as it presents itself.

”The whole idea is about getting a good outcome in the situation as and when you’re interacting with a customer – it’s about adjusting your service at that instance, for a particular customer. Brokers already do a lot of that anyway, so if they carry on providing that great level of service then they are probably already providing vulnerable customers with the support they need.” 

As far as the FCA sees it, vulnerable customer regulations are not about coming down hard on those who make honest mistakes when trying to provide these customers with a fair service.

Sparkes added: ”We’re all humans and we all make mistakes occasionally. What’s important is what you do afterwards and how you follow up to correct a mistake. It’s about organisations demonstrating that they have a culture that allows them to do that.” 

The theme of recent activity from the FCA has been to focus on principles rather than rules – and this is just another example of that trend. 

So, ask not exactly which customers are vulnerable, but ask what you can do for those customers when they come into contact with your organisation. 

A bit wooly, perhaps, but it leaves open the opportunity to innovate in this standard of care for those who would like to take it.