Treating insurers patronisingly

' Last week the FSA published its latest paper on Treating Customers Fairly (TCF), its purpose "to help firms and others assess the practical implications of the principle that firms must pay due regard to the interests of their customers and treat them fairly".

But the insurance industry's reaction has been less than welcoming. One senior executive pithily described the FSA's stance as "a load of b******s", summing up the feelings of many. Others have berated the FSA for further meddling in the operation of the market and introducing yet more rules and paperwork.

One cannot deny that customers should be treated fairly. You only need to look at some of the scandals uncovered in other parts of the financial services market - split capital trusts and endowment mortgages to name but two - to see the importance of fair dealing and the impact on consumers when things go wrong.

But is it really necessary or indeed helpful for the regulator to create a further set of rules for firms to comply with?

The FSA says that its TCF papers are not about creating new rules or checklists; merely to "suggest factors that firms might want to consider in meeting their obligation to treat their customers fairly".

Nonetheless, senior managers are expected to assess how fairly customers are treated, put in place fair treatment procedures and have these scrutinised by the FSA's supervisory teams, with the regulator threatening enforcement action against non-compliant firms.

But the fair treatment of customers is a commercial issue: it is in firms' own interests to treat their customers properly. If they don't their customers will go elsewhere - that's basic business sense. Any salesman will tell you that the way to attract and retain customers in the long-term is to exceed their expectations in terms of service. Give them what they want - and more. Treating customers fairly is part and parcel of that.

The need for TCF rules must also be seen in the context of the short-term nature of insurance contracts. If a customer is not happy, they can cancel the policy or renew elsewhere.

For the FSA to become so involved in this aspect of business is for the most part unnecessary and overbearing. In many cases it is simply stating the obvious or is rehearsing areas already covered by other rules.

Look at the areas that the FSA highlights as being important for firms to consider as part of their TCF analysis. One is product design. The regulator says that a product's "features and risks" must be communicated in ways the customer can understand. Does this sound like the key facts document and policy summaries that policyholders must be given?

Another area is remuneration. The FSA is concerned that structures such as commission arrangements might affect a firm's ability to treat customers fairly. This sounds a lot like the inducements section of the conduct of business rules to me.

What of claims handling? The FSA suggests that firms manage claims handling fairly so that genuine claims are paid, while firms take reasonable steps to address claimant fraud.

It is no surprise that the industry is critical of the regulator when faced with guidance like this. The fair payment of claims is at the very heart of what insurers are here for. Those that don't will rightly lose customers, while those that do will reap the rewards. At the end of the day, an insurance policy's value is only apparent when a claim is made.

And telling insurers to take "reasonable steps" to tackle fraud is obvious in the extreme.

In fact 'obvious' is the main word that comes to mind when thinking about the TCF campaign. That and 'a total waste of time'. IT