The new rules can be used to ensure insurers ‘do not engage in sludge practices, such as drawing out the time taken to pay a claim unnecessarily’, says policy and public affairs director

Brokers can use the consumer support outcome outlined in the FCA’s Consumer Duty to put “regulatory pressure” on insurers when dealing with professional indemnity (PI) claims, said Matthew Connell, policy and public affairs director at the Chartered Insurance Institute (CII).

According to Connell, professional indemnity insurance (PII) tends to be a product with a “fairly lumpy claims experience”, due to systemic issues in particular sectors – such as cladding – causing a “dramatic increase in claims in a short period of time”.

Because of this, he added that it was “essential that insurance firms have the capacity to scale up if necessary”.

After the Grenfell Tower tragedy, for example, contractors and construction professionals faced a wave of cladding claims because of changes to the UK building safety laws.

“This can be a challenge in a soft market, where premiums have not necessarily kept pace with the resources needed to administer claims in a period when systemic issues come to the fore and, as representatives of their client, brokers may need the skills and knowledge to ensure that claims are paid efficiently during periods of high demand,” said Connell.

To help brokers in these instances Connell highlighted that the regulator’s Consumer Duty can be used to ensure insurers “do not engage in sludge practices, such as drawing out the time taken to pay a claim unnecessarily”.

‘Appropriate friction’

A “strong understanding” of these new rules and how they “impact regulatory expectations around claims handing” will provide brokers with “new tools” to “ensure claims are paid more speedily”, he said.

The FCA’s Consumer Duty includes four areas where desired outcome are concentrated – including products and services, price and value, consumer understanding and consumer support.

The consumer support outcome sets overarching requirements regarding the support that firms provide to their customers and should be read in conjunction with other relevant rules, such as the FCA’s Dispute resolution: Complaints (DISP) rules.

Under the rules, according to FG22/5 Final non-Handbook Guidance for firms on the Consumer Duty, published by the FCA in July 2022, firms must, for example, “ensure they include appropriate friction in customer journeys to mitigate the risk of harm and give customers sufficient opportunity to understand and assess their options, including any risks”.

The rules further note that, in instances where evidence suggests that the quality of support falls short of the outcome, firms need to “act promptly to address these”.