In the second of our Treating Customers Fairly series, Ian Jerrum reviews the operational areas relating to the FSA's product lifecycle framework
The FSA's intentions in devising its Treating Customers Fairly (TCF) product lifecycle framework were to help firms carry out a thorough gap analysis across the full range their activities, to identify any weaknesses and to plan remedial actions as appropriate. The framework consists of eight stages.
These cover: product design and marketing; interfaces between producers and distributors; the sales process; after-sale customer support and information; complaint handling; staff remuneration; management information; and strategic change. We will consider here the first four.
Where a firm is involved in the design and marketing of a product it will clearly have an important role to play in treating customers fairly and reduce the risk of inappropriate selling - even if it is not directly involved in the sales process.
The FSA urges consideration of a range of issues including:
The first stage of the framework suggests examples of good practice, such as testing customers' understanding of product literature, including TCF assessments in the approval process for new products, as well as reviewing products annually to ensure they are still appropriate in terms of TCF.
The second stage in the FSA's product lifecycle framework focuses on interfaces between providers and distributors (for example, underwriters and intermediaries).
It is obviously important that each party clearly understands its respective responsibilities in TCF terms and also that relevant feedback is passed between them.
Issues for consideration include what impact one firm's actions have on another's ability to deliver on TCF, factoring in TCF when selecting business partners, implementing appropriate monitoring and review provisions, agreeing expected standards of performance and of course, managing relationships appropriately.
Examples of good provider-distributor practice include: assessing partners' values, expertise and quality of service (rather than simply the profit potential they appear to offer); ending relationships that might harm the firm's brand - even when this means losing business; providers ensuring staff are adequately trained to handle distributor inquiries; and regular meetings with partner companies.
Although stage three in the product lifecycle - sales - is already regulated in some detail under the Insurance: Conduct of Business (ICOB) rules, there are some important additional factors to be considered from a TCF point of view.
For example, do customers clearly understand with whom they are dealing and whether and when they are receiving "advice"? Are they aware of the extent of choice available to them? Do they understand what information is required from them and the implications of failure to provide this accurately?
Are there safeguards to prevent the sale of products (those bundled with other sales, for instance) of which the customer has little or no real need? How do firms assess what is appropriate to customers' needs? Do sales representatives ever suggest cover is compulsory when it is not, or otherwise take advantage of vulnerable customers?
At the sales stage then, good practice examples include monitoring retention rates, gathering customer satisfaction feedback, monitoring sales calls, guarding against gratuitous bundling, ensuring consistent criteria for determining what choice of products is offered, as well as making it clear when information is being offered without a recommendation being made.
At stage four, after sales (for example, payment administration, mid-term adjustments, queries, cancellations, renewals and claims) there are further issues for firms to consider. They must ask themselves how clearly their staff explain to the customer:
On the claims side, firms need to consider how customers' expectations are managed, how to help customers understand the extent of cover, the process of making a claim and the likely timescales involved, provisions for expediting genuine claims while guarding against fraud and managing the TCF performance of third parties such as loss adjusters.
After sales good practice would include reviewing the clarity of documentation and correspondence, monitoring claims settlement times and third party performance, monitoring calls, gathering customer feedback, and monitoring the fairness of claims settlements, for example, were items paid for where the customer did not realise they were covered.IT
' Ian Jerrum is managing director of Searchlight Solutions.
This feature is based on materials available on Searchlight's market-leading e-learning system Tick
Test yourself on TCF
Q1. The FSA's product lifecycle framework consists of how many stages?
Q2. Name two examples of good practice cited by the FSA in relation to stage one, product design and marketing.
Q3. Rather than looking purely at their potential profitability, firms should consider what other factors when assessing potential partner companies?
Q4. Name three instances of good practice suggested at stage three in the FSA's product lifecycle framework, sales.
Q5. At stage four, after sales, the FSA names a variety of claims-specific issues to be considered in a TCF context. Name three.
A2. Any two from: a) testing customers' understanding of product literature, b) including TCF assessments in the approval process for new products, c) reviewing products annually to ensure they are still appropriate in terms of TCF.
A3. Their values, expertise and quality of service (and any other factors with a bearing on their ability to treat customers fairly).
A4. Any three from: a) monitoring retention rates, b) gathering customer satisfaction feedback, c) monitoring sales calls, d) guarding against gratuitous bundling, e) ensuring consistent criteria for determining the choice of products offered, f) making it clear when information is offered without a recommendation.
A5. Any three from: a) how expectations are managed, b) how to help customers understand the extent of cover, c) the process of making a claim, d) likely timescales, e) provisions for expediting genuine claims while guarding against fraud, f) managing the TCF performance.