The second part of Insurance Times' public debate on Treating Customers Fairly (TCF)
Turner: The first thing is to try to keep complaints to a minimum. You do that by having well-?trained and competent staff who understand that treating customers fairly is what we are in business to do. Clear, fair documentation that is not misleading is very important so that the customer understands the cover and what exclusions and limitations there are. Good record? keeping is necessary. A written note should be made of all conversations with a client and placed on their file.
Furthermore, you want to have good sales processes that can find suitable products for a client. You need to know about your client and understand their business in order to provide the right cover. Price is also a factor, and depending on insurers, there will be different service standards. You are looking to provide an all?round product. If you do that complaints will be reduced.
However, you cannot always avert complaints, so it is essential to have a good complaints procedure that is written down and implemented throughout the organisation. When you are dealing with a complaint you have to deal with it fairly, and make sure it is investigated properly by a person who is independent and not directly involved in the complaint. The client should be provided with a detailed response, and if the firm is at fault there has to be an apology and a consideration of whether any redress is required. In that way, you can turn a negative into a positive and retain the client and continue to keep their business as a loyal customer.
Holloway: In general I agree with the question that complaints handling is a key part of TCF. By way of concept, the FSA and indeed the Financial Ombudsman Service takes quite a dim view of us relying too heavily on a good complaints? handling process. The emphasis is on getting processes right first time and ensuring the customer is dealt with fairly upfront at the point of sale. Perhaps too often in the industry I have heard people say it is okay. I know that this has not been clearly explained, but if the customer complains we have a good process for dealing with that at the back end, probably conceptually that is not good enough; it is an important part of the process, but equally it is key to get the sale right in the first instance.
Melican: Building on that point, I think Paul is right that the FSA has increasingly seen complaints ?handling as very important in the TCF context, not just in terms of having a TCF compliant management process but also how you learn from complaints so changes can be made to documentation or products. Increasingly, they are interested in seeing how firms feed back information from complaints and then use it to drive improvements in the business overall.
Paton: Continuing from what Simon was saying, there is nothing like a claim to test the contract. He used the phrase ‘managing expectations’. Often complaints emanate from a failure to manage a policyholder’s expectations properly either in the early stages or throughout the period.
Peterkin: The complaints process is a vital part of it, but sometimes people think it is the answer. In our experience, complaints are often the symptom. A firm should understand where certain areas might lead to complaints, and obviously the failure to pay a claim properly is a common one, but if it notices unexpected complaints in less common areas that is often a symptom of more serious problems in relation to TCF.
Clarkson: Part of the issue here is how one defines what the significant exclusions are when you are arranging the cover for the client in the first place. What is significant when you arrange the insurance may not be the significant item that was excluded when the claim occurred, which is difficult particularly for the smaller brokers at this point in time. I am spending a large amount of my time these days pointing out specific areas of coverage that do not exist to make sure that the client does not come back to us in two years’ time and says ‘I always thought that was covered’.
Lewis: But that is something a client might expect a broker to do, and as Simon said, when you do it yourself on the internet and you have to read reams of paper that how ever well written may not be meaningful ultimately. Presumably, a good broker would ask a client: “Do you understand that part?”
Clarkson: I agree and that is where brokers do have one? up on the direct market.
Burgess: There is no substitute for going to a broker. If a broker can offer a competitive price, go for a broker all the time because the quality of advice one gets is invariably very good. It is the added value of going to a broker, which is often not factored in the price. There is considerable added value by seeking the advice of a professional who can guide one through the minefield of contracts, which are often highly complex. As an insurance broker I can see the value of going to a broker. I always go to a broker for my insurance because I know I will get added value. A broker may not always be the cheapest solution, but I will be fairly confident of getting the best policy for me through my broker because he understands my needs and that I am looking for quality.
Clarkson: My question is quite specific. As a charitable company, we make a charge for checking insurance arrangements for properties that we offer loans on. If we were to waive charges for the cases where we arrange the cover as a broker wearing another hat, would that constitute fair treatment of our customers or could it be considered to be unfair and possibly show an area of conflict of interest? We are upfront when we make these charges and tell people that if they do not arrange their insurance via us we will make an admin charge to check our security is protected.
Melican: The key point here is the transparency part. Obviously, as you said, you are explaining to the customer what the charge is for and that goes a long way under TCF.
Clarkson: We tell them what it is upfront as well.
Melican: I would not like to sit here and give you a yes or no judgment on whether that is TCF or not. You have hit the nail on the head in terms of conflicts of interest. You have to satisfy yourselves and go through the process of ensuring you do not believe there is a conflict of interest there or any customer detriment in terms of that practice. A great deal of that involves being honest and transparent so that you disclose things to the customer and they know exactly what they get for whichever option they take.
Turner: You have to put yourself in the shoes of the customer looking at this and consider whether you would think it is fair or unfair, so in that sense you can make your own mind up. If you look at it as if you are the customer and feel it is unfair, then I guess it is unfair. It is about looking at it in that way. It is good that you tell the client upfront what the charge is. In terms of cases where the FSA steps in, you would want to demonstrate you have gone through a process to consider whether it was fair or unfair and have kept documentation to show you have gone through that process.
“Often complaints emanate from a failure to manage a policyholder’s expectations properly
Gary Paton, Axis
Clarkson: We changed the procedures to ensure we do it appropriately.
Turner: Then, okay, they may say they are not happy with it, but at least I do not think it would go to enforcement or anything to that extent.
Clarkson: Of course, a few years ago this was a highlighted issue for banks and buildings societies in the way that they dealt with mortgages on home loans and insisted on having cover arranged by the bank or building society concerned. This is something that has been in the public eye in the past. My understanding was that providing firms are upfront and say ‘Okay, you can arrange your own insurance but we will make an admin charge for checking that it is adequate to cover our security’, that was alright from that perspective at the time. However, as always, the big question is whether things have moved on since then.
Holloway: In my opinion, the key point here is the value and reasonableness of the charge. We have already covered transparency, but certainly if you look at the GI market as a whole the FSA has on occasion taken exception where charges have been unreasonable and disproportionate to the checking work you would have to do.
Burgess: My concern would be to know whether there is any element that is factored into the admin fee. If it is purely to cover costs then I would be relatively comfortable, but I would also want to know who is the beneficiary of the insurance. Who is going to get the claim? Would it be paid to the charitable organisation or is it paid directly to the client? Is it a risk management cost? Is it protecting one’s book?
Simon Goldhill, Inter Resolve: In terms of making an admin charge I would agree with everything the panel has said. Clearly, if there is no profit and it is work that needs to be done then it is reasonable to levy a charge for it. I do not know your business, Mike. There might be an issue if you were to get any commission for arranging a policy and you disclose it to the customer, but it was felt that an admin charge of whatever level was designed, as it were, to push the customer into buying your product rather than someone else’s.
Christine Smith, principal accounts director, The Replacement Service: What are the key benefits that the insurance industry will gain by treating customers fairly?
Holloway: It sounds like the Compliance Institute’s exam script. In terms of the benefits that we would highlight we would see this as part of the move to a bias towards the principles-based regime. That gives us more flexibility in the way in which we apply regulation. There are key concepts there in terms of fair treatment for customers and detriment to customers. In the last few years, there have been some examples where we have done daft things in regulation, one of which was the application of the mixed use rules.
The FSA came from a very laudable position of saying where there was any element of mixed use on a policy then a customer must be treated according to the slightly more onerous private client rules. I believe the upshot of that was that a number of pubs, restaurants and taxis were treated as private individuals rather than firms, with absolutely no benefit to the customer and quite a large cost to us as insurers in re?jigging the documentation to deal with that.
For instance, currently the FSA is pressing us to add a copyright sign to the key facts logo. Again, if we are moving down a principles ?based route, perhaps we can have a more principled and grown?up dialogue on those kinds of issues and we can still maintain the same benefit to the customer and do so in a way that is cost? effective and more imaginative.
The key benefit, and this was something that was drawn out in the FSA’s thematic work that perhaps we had not realised as an industry, is that customer service, which we have always been focused on, is not quite the same as TCF. Making the distinction between the two and looking at what it means to treat customers fairly has been a useful exercise for us.
One of the very notable things within AXA and in the industry generally is that this has entered our corporate vocabulary. When I attend board meetings one of the things we do on the strategy decisions is actively to ask the question: “Does this new strategy treat the customer fairly and what are the TCF implications?” There is also an element of good citizenship in terms of our relationship with the regulator and with the community generally that can only take us in a positive direction.
Turner: If the service from insurance companies improves as a result of TCF that will be a greet boon to the industry. As a broker, I think one of our main concerns is the service we get from insurers. If we can improve that it will be very helpful. Contract certainty has helped in some respects to start to improve that process, although again our experience is that we are not always getting insurers to look at the subjectivities and making sure we have time limits on those. We are not always getting the documentation in good time. We find particularly that we receive the documentation within a good period of time so we can issue it, but it turns out to be wrong and has to go back and by the time it is returned to us we are outside the limit of contract certainty. I would hope that one of the key benefits from the TCF project is an improved service from insurers.
Burgess: One of the key benefits of TCF is that we will sell more insurance. People will see the benefits of buying insurance and that the industry does pay claims. It is good for our business. There is often a forced perception in the press and elsewhere that insurance is a bad thing and is there to rip off consumers and take money under false pretences. That is patently not true. TCF is a fundamental thing we should be doing as an industry and by doing that our reputation and business will improve. It will mean businesses are based on solid foundations instead of sand as is the misconception and, dare I say, false reporting.
Melican: From our point of view, I would argue that we see two benefits of TCF. One is the regulatory dividend because there would be an increased relationship of trust between the industry and the FSA and added flexibility, which means companies can serve their customers better ultimately. Secondly, the reputational dividend should not be underestimated. Although the FSA obviously never endorses any of these things, having what one might describe as a regulatory stamp of approval, or clean bill of health as an industry with the majority of companies consistently treating customers fairly is a really good story to tell.
Burgess: There is one benefit as a business in that if everybody starts to treat customers fairly it brings a level playing field. It enables legitimate businesses to compete with those that cut corners and try to avoid treating customers fairly. It enables me as an insurance broker to compete with others in circumstances where perhaps we would not, so it is good for my business. It enables me to compete, quite frankly.
“There is a very big process within most of the industry to see TCF as an ongoing process of continuous improvement
Ian Holloway, AXA
Holloway: Although you will see a reduction in regulation and in the rule set, fundamentally the rules are underpinned by the European context in which we are bound with the Insurance Marketing Directive and the Distance Marketing Directive. Furthermore, although in the bulk of GI areas you will see a reduction in the rule set, in areas where there are concerns around the treatment of customers in the long run the FSA will increase the rule set. That is the path we are now going down with payment protection insurance (PPI). This means there is also the reserve power for the FSA to look at this market, and if we do not make a good job of TCF then it will step in and police that.
Peterkin: We posed some more questions when the compliance consultants met with the FSA in February at a panel discussion. An interesting point to emerge from that discussion was that the FSA is very keen for firms to look very carefully at their client definitions from the point of view that quite a lot of regulatory dividend, as they put it, comes from the fact that if a firm defines their clients very carefully they escape a considerable number of regulations both in the detailed terms and also in the TCF principles. That does not really help to control the cowboys, because it encourages them to use the ‘M1 motorway’, as I described it, to avoid regulation at all costs.
Lewis: To what extent are wholesalers who do not deal with retail customers required to comply with TCF? When I did some research on this I found it rather confusing. Helen, can you enlighten us?
Melican: It is true that TCF is primarily a retail initiative and the FSA has always been quite clear about that. Obviously, with the definitions between retail and wholesale there is a kind of blurring of the lines. The FSA has been quite clear that if a wholesale company deals with retail customers then it needs to consider TCF. There is also a second part to that whereby if you are a wholesaler and originate products for distribution to retail customers by other companies, you may also have TCF considerations.
When I think about that, it does make sense if you think of TCF as covering the lifecycle of the product. In other words, if you are having an input to product design you may not be selling those products yourself to the retail customer but down the chain they are going to the retail customer. If that is the case, then you would need to think about the type of questions that the FSA has been putting out on product design, for example.
Holloway: One of the key issues that exists within distribution chains is that the insurer may be quite far removed from the actual sale to the customer. In some cases, retail intermediaries in particular will be quite concerned about handing over customer data and discussing the relationship they have with their customer. I guess that is a legitimate concern, but it does mean that the feedback up the chain is somewhat constrained and that has implications in terms of our ability to modify design and look at the way we are structuring our products. I think there is a role for the wholesaler in the middle to facilitate some of that perhaps, and certainly to participate in the chain as a whole.
Burgess: My company is both a wholesaler and retailer. We have decided that we do not want to abrogate our responsibility to the client, whether we are a wholesaler or a retailer. We want to protect our reputation because we are in the chain of distribution. Since the wholesaler is often an expert rather than a general practitioner, we want to help the people further down the distribution chain by ensuring their clients have their claims paid. We produce question sets and information. We list information to make sure clients are eligible to receive cover. Basically, we can give guidance and help, and our retail customers are finding that extremely useful because we are giving them a helping hand to ensure their own compliance.
Turner: We also do some wholesaling and there are some issues on TCF certainly where as a wholesaler you may have a delegated authority from an insurer from the policy side but you may also have a delegated authority from a claims perspective. Where you have the claims delegated authority you could possibly be dealing with the end user, which means it is important to manage those claims in the right way. There is certainly a TCF involvement in that regard and particularly in terms of managing conflicts of interest.
In some respects it is a question of where you are within the chain.
Sean Tomlinson, CGI Europe: CGI Europe is a consulting systems integration company. Do you think companies are making the changes that will ensure TCF is in their DNA or corporate culture, and how can a customer tell?
Turner: Generally speaking, in the GI industry, particularly on the broking side given the competition, and certainly on the commercial side, if you do not treat customers fairly you will lose business and eventually go out of business. They are annual contracts and clients can walk at the end of that 12 months. If you are not treating them in the right way, providing the right cover or the right price, customers will soon know. Generally, I think TCF is there on the intermediary side. That is why we hear the talk about what we must do to ensure we are treating customers fairly. We have always treated customers fairly. If you are losing lots of business, then a possible reason is that you are not providing the right product. My view would be that generally the culture has always been there on the intermediary side, but it is a continuing process of improvement and not just about doing it once. The world changes, so it is important to look at these things on an ongoing basis.
Burgess: With a few exceptions, the vast majority of companies in the insurance industry are treating their customers fairly. The problem is you cannot tell if you are not being treated fairly until it is too late. There ought to be transparency. For example, there should be publication of the complaints companies receive and how many of those are resolved and in what period of time. Not all that information is confidential. It goes onto a RMAR form and the only organisation that is aware of it is the FSA. Why is that information not published? It is fundamental.
Turner: Do you think we would want to move towards league tables as they have in the education sector?
Burgess: We ought to. We take great pride in the fact that we have not had a sustained and justified complaint against our business. That is because we are treating our customers fairly.
Holloway: If you look at some of the models that have been used for TCF, it is in the contact points where one would expect the customer to see most change. For instance, particularly in the clarity of documentation and the sales process. We have never thought of this as a one?-off project ?based exercise. There is a very big process within most of the industry to see this as an ongoing process of continuous improvement. This is probably something we would expect to see a son or daughter of in due course and certainly we would expect to see the FSA continuously assessing where we are going in the future on TCF.
Generally, I think this has been a very positive move. However, the one point I would mention, and which I think we have already picked out, is that it does not do enough to deal with the rogues in the industry. We may have a very small number of those, but we cannot expect that small minority to take the concept of TCF seriously. If you are approaching this on the basis that you have no intention of giving fair treatment it will never happen, so it requires tight rules and policing.
Melican: There is a challenge both for the industry and the FSA to think about how to evidence the culture of TCF meaningfully. On the retail side, customers have plenty of opportunities to show their dissatisfaction in terms of changing provider and cancelling policies and they are also aware very often of the power they have to shop around. Something that is slightly worrying is that we have heard from the FSA that what senior management says to it is not always corresponding with what it then sees on the frontline within some firms. However, the industry has made real progress. This was borne out by the FSA’s report on the implementation deadline which said firms have come a long way in the past three or four years since TCF was launched as a project. That has to be acknowledged, and also that the industry has made solid first steps and there is a positive outlook in terms of building on that.