The Financial Conduct Authority (“FCA”) has raised concerns that the raise in cost of living could lead consumers to cut-back on household expenses such as insurance policies, leaving them without protection.
In September, the government announced its plans to provide further support for consumers and businesses for energy costs. The FCA stated that “while this will help tackle the pressure on household budgets, some people may still consider cutting back on insurance cover.”
The FCA sent its latest ‘Dear CEO’ letter to insurance industry CEOs asking firms to ensure their customers are protected from unnecessary products or add-ons and unfair penalties. Where poor practise is found, the FCA have stated that they will quickly intervene to protect customers from harm.
Customers, including businesses, in financial difficulty are more likely to need to pay for their insurance monthly through premium finance. They may also be the most affected by general interest rate rises and have a higher likelihood of not being able to make a payment.
If customers face increasing difficulty paying bills or repaying debts, the impact on them is unlikely to be purely financial. Consumers will be more likely to face pressures on their physical and mental health, which in turn could worsen the impact of their financial difficulties.
Within its Dear CEO letter sent to firms on the 29th of September, the FCA set out it’s expectations for insurance firms. These include;
- Firms must provide appropriate support to customers in financial difficulty. This should include consideration of the FCA’s Covid insurance and premium finance guidance.
- Firms must ensure consumers get access to fair value products.
- Firms must consider premium finance as part of fair value assessments, with price (APR) likely to be the most significant factor in determining whether the premium finance provides fair value.
- Firms must provide customers with appropriate product information and only propose policies that meet customers’ demands and needs.
- Firms must handle claims promptly and fairly.
- Firms which offer products to multi occupancy buildings, should include leaseholders when determining what might constitute fair value or be in the customer’s best interests and meet their needs, or in the future deliver good outcomes for consumers under the Consumer Duty.
The FCA stated that firms can help customers in financial difficulty by:
- Reassessing customers’ needs
- Considering whether there are other products that better meet the customer’s needs
- Providing clear information to consumers about the additional cost of premium finance
- Working with customers to avoid the need to cancel necessary cover
- Waiving fees associated with adjusting a customer’s policy in line with the reassessments
- Considering whether cancellation fees should be removed for customers in financial difficulty
- Firms must continue to provide clear information when customers renew their policy to help them decide whether they want to go ahead or shop around for a better deal.
Within the Dear CEO letter, they FCA suggested that they are considering options for adapting their insurance Covid guidance for customers in financial difficulty. This could potentially include a consultation later this year.
Firms should take note of the FCA’s expectations, particularly in reference to the Consumer Duty. Firms should have their implementation plans in place by the end of October 2022. The FCA also noted that firms should be mindful of work that needs to be undertaken with other parties to prepare for the Duty.