‘A watershed moment’ – Reaction as Consumer Duty comes into force

The largest piece of regulation affecting the insurance industry in the last few years has officially taken effect from today (31 July 2023).

The FCA’s new Consumer Duty fundamentally realigns the requirements placed on insurance sector firms in the UK, ensuring they measure positive customer outcomes around four metrics.

This includes products and services, fair value, consumer understanding and consumer support.

With the time for preparation over, firms have been revealing what they think about the new regulation and what it means for the insurance sector.

Nicola Dryden, chief client officer at Sedgwick UK, said the duty was the “biggest shift in financial services regulation in recent years”.

“The duty is an excellent opportunity for insurers to focus on further enhancing customer journeys,” she said.

“Furthermore, firms will now have a laser focus on looking at everything through the lens of the customer, making sure they offer policies and ongoing support that is best suited to individual needs.” 

Sedgwick UK’s operations employ over 2,200 operational staff and comprise a wide range of disciplines tailored towards diverse areas, including loss adjusting, claims management and risk solutions, surveying and investigations, legal services and resource solutions.

Speaking about what the new Consumer Duty meant for loss adjusters, Dryden said: “The duty presents an opportunity to collaborate with our insurer partners even more closely to ensure better, more bespoke service, greater transparency and the right outcomes for customers.

“We look forward to seeing how the duty ensures that customers’ needs are always put first.”

’Implementation’

Meanwhile, Tobin Ashby, partner at law firm Kennedys, said the FCA will “inevitably want to be seen to be proactive on such an important area of its strategy”.

Over the last few months, the regulator has been keen to highlight that the process of implementing Consumer Duty is iterative and should not be considered as an exercise that is completed and then forgotten about.

The regulator has also highlighted its intention to become more assertive around the enforcement of its rules – for example, it hired two new enforcement directors in March and said it was “committed to acting faster and more effectively” where enforcement operations were concerned.

Ashby warned that firms who were not ready “must therefore ensure they are on top of what is left to be done”.

“Even firms that are ready for the new duty will need to consider how embedded it is, developing their business as needed beyond the implementation date and be able to evidence that,” he said.

Digitisation

Prakhar Agrawal, head of the risk and compliance practice for consultancy EXL, added that the new duty offered insurers a moment “to take stock and invest in digitisation and data management to supercharge not only customer experience, but customer outcomes”.

“The consumer duty deadline is a watershed moment for the insurance industry,” he said.

“Insurers who use the deadline as a springboard to digitise will see drastically improved customer satisfaction, improved efficiency and cost reduction.

“Those who don’t could fall prey to swift action from FCA interventions or – more importantly – sacrifice customer relationships and market share when other players prove more agile.”

Last week (27 July 2023) consumer champion Which? said it was concerned that there were insurers “falling short” of the FCA’s requirements around Consumer Duty and urged the regulator to monitor performance and hand out “tough penalties” for those who fell below the required standards.

For example, it found some 77% of people with car insurance, 56% with home insurance and 43% with travel insurance were not provided with a reason for their claim not being paid in full.

The findings came from a survey in November 2022 of over 2,200 car insurance customers and over 1,500 home insurance customers who had made a claim within the last two years.

In March 2023, Which? also surveyed 804 travel insurance claimants who had made a claim within the last two years.

Suzanne Homewood, managing director at software firm Moneyhub Decisioning, said that putting customer needs first was a process that should “extend indefinitely into the future”.

“Whilst today’s official deadline is the green light for change, it’s actually the power of the permission that the FCA is granting for organisations to use regulatory change to transform customer relationships, which should serve as a positive catalyst for opportunity and innovation, continuously improving outcomes for both organisations and customers alike,” she said.