By Kareline Daguer, Deloitte EMEA Centre for Regulatory Strategy director; Laura Scarpa, Deloitte Markets Assurance team partner and Matt Papasavva, Deloitte Risk Advisory Practice director.
There is a gap between what the FCA expects from firms when it comes to evidencing good outcomes under the Duty and insurers’ ability to do so in reality. Bridging such a gap will be central for insurers to transition their Duty programmes into business as usual while managing the threat of an ever-rising compliance bar.
During the summer, the FCA published its thematic review findings on PROD compliance while also taking a strong stance around the quality of outcomes monitoring in the GI market. It is clear the regulator is willing to intervene to improve the quality of outcome monitoring. In this blog, we stand back from the detail and look at the bigger picture of where Duty compliance is going.
What are the key components that should allow insurers to fill the expectation gap successfully?
We believe there are three key areas firms should focus on:
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1. Shoring up your Duty data framework |
Starting with the obvious, all insurers have a significant volume of data at their disposal. However, in many cases the available data is not coalescing into what is needed to demonstrate compliance. Insurers need to review their Duty data frameworks and identify their weak spots. These can range from having a narrow range of metrics, lack of trend analysis, lack of granularity, system issues and data interpretation challenges. Vague and high-level data that cannot tell a story will not get you where you need to go. This is likely to require a mindset change. Although data can indicate a firm is compliant with the Duty, the regulator expects firms to use data to identify areas where outcomes should be improved and follow through with clear actions. Our article on Evidencing Duty compliance analyses 34 FCA publications to identify and categorise the range of metrics the regulator expects firms to use. |
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2. Making sense of the whole |
Insurers should look beyond individual conduct metrics. Looking at a range of metrics and the links between them might tell a different story about outcomes and provide better insights. For example, a low level of complaints plus rock bottom loss ratios might well mean that customers have very low understanding of the product or even worse might have products they have no need for. Firms should build a framework that allows for connections to be made between key metric trends, QA and compliance reports, customer satisfaction surveys and other qualitative indicators. This can make a big difference to the quality and depth of interpretation and the effective monitoring of outcomes. |
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3. Embracing data through the chain |
One of the key challenges for insurers has been data sharing across the distribution chain. We believe insurers and distributors should consider developing market solutions to enable better information exchange. Individual efforts, regardless of how well intended, will fall short due to the sheer complexity and volume of data that needs processing when firms participate in long and complex distribution chains. Developing a sustainable solution to data sharing is key to managing the costs of compliance and more importantly the risks of operating in a complex market. A market level information sharing capability can provide firms with certainty and a robust approach to third party conduct risk management. |
Finally, because of its principles-based nature, the Duty requires firms to take a dynamic approach to what it means to be compliant. Consumer needs change over time due to evolving technological, demographic and economic factors. As an example, a recent survey found a quarter of people aged 18 to 34 never answer the phone. However, as consumers age, they require available channels to evolve with their needs, possibly making telephony relevant again. Last year’s interest rate rises prompted the regulator to challenge retail banks on how quickly they were passing interest rate increases to savers. 
Closer to home, there is increasing interest in motor insurance pricing pressures and what this means for vulnerable customers. Evidencing Duty compliance is not a single point in time exercise but should evolve over time to capture the evolving needs of customers and the changes driven by market forces. These factors and forces should inform the review and update of the Duty data framework, the metrics and sources used and the thresholds for action, i.e. the very definition of what a good outcome is can well change over time.
In conclusion, effective monitoring of Duty outcomes is the key to bridging the gap between FCA’s expectations and firms’ reality. Effective monitoring cannot be built in isolation. It is not about a single team trying to do the right thing, nor about a single firm trying to do the right thing at a single point in time. Effective monitoring should encompass the whole firm, its distribution network and the environmental factors that can affect consumers over time. Using this wider lens is not easy but should help insurers engage in a much more productive dialogue with consumers, distributors and the regulator. A dialogue that hopefully will lead to much more certainty while managing the costs and risks of Duty compliance.
As the regulatory landscape continues to evolve, staying informed about the latest developments is essential. Please join us at “The Future of Conduct Regulaton: What Lies Ahead?” an upcoming ABI event where you’ll gain actionable insights and explore key themes like the Consumer Duty, growth & competitiveness and innovation.