The major problem in applying Treating Customers Fairly is that it defies strict definition. Roger Flaxman gives some advice on how practitioners in an industry based on definable products and principle-based regulation can deal with a concept so open to interpretation

The recent Insurance Times public debate on Treating Customers Fairly (TCF), chaired by Chris Lewis from the BBC’s Moneybox programme, revealed a startling array of views on what TCF means and how businesses should deal with it.

Dick Tucker, compliance manager at Stuart Alexander, expressed a concern many small firms have about trying to find out about TCF. “The experience for most small firms,” he said, “is that the [FSA] Consumer Contact Centre does not always provide the right answer, or indeed a good or qualified answer. This is certainly a problem for small firms and I’m not sure what the answer is other than perhaps going through a trade body and using it to help with that process. I know that BIBA will help its members in that way.”

He is quite right. BIBA will help its members and is already on the case. In the meantime, some preliminary guidance, taking into account some of the remarks made in the TCF Question Time debate, may be of help to Insurance Times readers.

Defining TCF

Simon Burgess, managing director of British Insurance and one of the programme’s panel members, said: “As a small broker I would find it very helpful to have some guidance on the definition of when a customer is not being treated fairly.”

The fact is TCF, in itself, defies strict definition. This is why many insurance practitioners are having difficulty getting to grips with the concept: they are used to definitions.

The whole point of TCF is that it forms the nucleus of principle-based regulation as distinct from codified regulation. This is a problem for an industry that is largely based upon products (policies) containing definable terms and regulations that are definable and capable of being tick-box compliant.

There is no general experience of dealing with a regulation that cannot be absolutely defined. For the broker the fear of’ ‘getting it wrong’ and being punished by the FSA is overwhelming, which makes the demand for clear definition understandable.

What guidance will help? The FSA requires six consumer outcomes. Consider the alternative versions for each; the first being the essence of TCF, the second being the opposite, what you might call TCU (Treating Customers Unfairly).

1. Consumers can be confident they are dealing with firms where TCF is central to the corporate culture

• The firm has integrity or,

• The firm has no integrity

2. Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly

• Products are fit to purpose or,

• Products are deliberately or negligently not fit to purpose

3. Consumers are provided with clear information and are kept appropriately informed before, during and after sale

• Written and verbal information is clear and useful or,

• Written and verbal information is deliberately or negligently confusing

4. The advice given consumers is suitable and takes account of their circumstances

• A suitable assessment of demands and needs or,

• No account of demands and needs has been considered

5. Consumers are provided with products that perform as firms have led them to expect and the associated service is both of an acceptable standard and as they have been led to expect

• What is on the can is in the can or,

• What is in the can is entirely different from what it says on the label – and we don’t do


6. Consumers do not face unreasonable post-sale barriers should they wish to change product , switch provider or make a complaint

• No hidden or rogue sales technique or,

• Hidden or rogue sales techniques are how we make our money

A genuine broker trying to please his client and create a good impression and reputation would not expect to achieve wealth or fame with the TCU interpretation. In fact, he might very well expect to receive a complaint that could lead to a claim of breach of duty or negligence.

Which Policy? What Price?

One of the questions, put to the panel by Jerry Beere of Morton Michel Insurance, was: “What are the TCF implications for brokers with delegated schemes from two different insurance companies? You could sell a customer either policy, but what if the policies are broadly similar and one is cheaper? Does TCF require that you must put forward the cheapest one?”

The consumer outcomes do not mention price. This is probably because it is generally of no concern to the law what price is agreed between two parties. Let’s assume that this is an advised sale.

The broker’s duty is to balance up the relevant benefits of both policies and advise his client which one to buy and give his reasons. Why? Because that is the duty of a broker to his client.

Every broker knows that two policies can be broadly similar but that the words and phrases may differ, as may the prices. It is not within the competence of a broker to give a legal opinion on the distinction between the meaning of particular words and phrases; it is only within his or her competence to give an opinion of which policy should be sold and why. That is, after all, why someone engages a broker.

There are many considerations to take into account when choosing a broker including the broker’s understanding (from commercial experience) of what the policy covers and its suitability for the insured’s needs (which could include the way in which aspects of cover are phrased); the security of the insurer; the class of business expertise of the insurer; and the reputation of the insurer for paying or disputing claims. These are the broker’s particular expertise and the basis by which the he or she will be judged.

Regulation and duty of care

Regulation has for a long time been regarded by brokers as entirely separate from risk of negligence (brokers’ PI claims). FSA principle based regulation, however, has inextricably entwined the two together.

There is now a very close relationship between FSA regulation and the broker’s common law duty of care to his client. The requirements of FSA regulation, particularly concerning TCF and demands and needs, are imposing a level of advisory skill on brokers which is becoming more comparable to that of a professionally qualified advisor, someone who, ordinarily, would be required to hold a practising certificate in order to give advice to the public.

This is becoming the insurance intermediary’s major conundrum. As the outcome of recent court cases against intermediaries have made clear, the standards of duty being applied are increasingly high and will only get higher.

Returning to Jerry Beere’s question on the matter of price: if a broker offers two broadly similar policies to the client and is able to explain the meaningful difference between the two, he is then able to ask the client which policy the client would prefer to buy.

It is likely that the broker will be asked, “which one would you recommend?” The broker must then make a decision based upon experience and judgement and be able to back it up if challenged at a later date. It may not be TCF to recommend the higher price, but it would definitely be treating the customer unfairly not to explain the basis of your decision.

TCF doesn’t start with the claim, of course. It starts with issuing a contract of insurance that does what it says it will do and, more importantly, that what it says is what the insured ought to be buying.

It is all about reasonable consumer expectation. Unfortunately, it’s usually not until the can has been opened, and it is found to contain tomato soup instead of beef consommé, that the insured knows whether or not they have been treated fairly.

In summary, to treat a customer fairly is to offer a product that you believe, based on your professional knowledge and skill, will meet the demands and needs of the insured and in which you have consummate faith that a fair claim will meet with the insured’s expectations in the event the policy is called upon.

TCF is very simply a matter of reasonableness, taking into account all the facts. The concept of reasonableness is a fundamental principle of English law, and goes to the heart of the laws of contract, agency, and tort (negligence).

The ultimate test of TCF, therefore, comes back to what the law would opine in any given situation, with due regard to the facts.

It’s important to keep this firmly in mind because if there is any attempt by the FSA, ABI or any other organisation to create a standard for TCF that ultimately conflicts with the test of English law, then not only is it destined to fail but it will be a gross disservice to both the insurance industry and the consumer. IT

Roger Flaxman is an independent adviser to Biba