The Financial Conduct Authority (FCA) is concerned that customers may cut back on household costs like insurance coverage as a result of the rising cost of living, leaving them defenceless.
The government made intentions to significantly subsidise consumer and commercial energy expenses public in September. 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. The FCA has said that they will act fast to safeguard customers from damage where improper practises are discovered.
Customers and businesses with financial difficulties are more likely to need to use premium financing to pay for their insurance on a monthly basis. They could also be more vulnerable to increases in all interest rates and more likely to be unable to make payments.
Customers may be affected in ways more than only financially if they have growing trouble making debt payments or paying off obligations. The impact of consumers’ financial issues may grow as a result of the increased likelihood that they would experience stress on their physical and mental health.
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 be aware of what the FCA expects, especially with regard to the Consumer Duty. By the end of October 2022, businesses should have their implementation strategies in place. Firms should be aware of the work that has to be done in collaboration with other parties in order to get ready for the Duty, according to the FCA.
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