FCA warns insurers to support customers’ wellbeing during cost of living crisis

Whilst the government has announced further support for consumers and businesses for energy costs and in the September fiscal event, including a two-year energy-price guarantee for households, the authority has recognised that some people could still cut back on insurance cover.

The watchdog has acted and Sheldon Mills, executive director – consumers and competition, has written to the insurance industry CEOs to make sure their customers are protected from unnecessary products of add-ons and unfair penalties.

According the FCA, it will quickly intervene to protect customers from harm. Indeed it has suggested it might adapt its insurance Covid-19 guidance for customers in financial difficulty, a move that could potentially include a consultation later this year.

The expectations the FCA has set out for now include:

• Customers in vulnerable circumstances: Providing appropriate support to customers in financial difficulty. This should include consideration of our covid insurance and premium finance guidance.
• Fair Value: Ensuring consumers get access to fair value products.
• Premium finance: Considering premium finance as part of fair value assessments, with price likely to be the most significant factor in determining whether the  premium finance provides fair value.
• Underinsurance: Firms must provide customers with appropriate product information and only propose policies that meet customers’ demands and needs.
• Claims: Handle claims promptly and fairly.
• Multi occupancy buildings: 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.

According to research used by the watchdog although households are looking to reduce spending, they do not appear to be particularly targeting their insurance costs. The FCA suggests this could be due to 2022 premiums for core products such as motor and home insurance being similar or lower than 2021 prices.

In May, the Association of British Insurers reported that average prices for home buildings and contents insurance dropped 7% and 11%.

However, in July Consumer Intelligence revealed the cost of car insurance had risen 7.8% since the start of the year after new rules came in to tackle the practice of “price walking”.

Consumer and SME impact

One impact stated by Mills was customers paying by premium finance could find it difficult to make the required regular payments and cancel their insurance.

In the letter he said: “Some consumers may increasingly focus on the price of insurance without considering demands, needs or baseline expectations and we have seen an increase in the number of providers offering ‘basic’ products. These products typically offer lower cover with higher excesses than more comprehensive products.”

SMEs may also be affected by cost of living factors in similar ways to consumers, the FCA added. They could be priced out of certain types of insurance (like cyber, professional indemnity or trade credit insurance) due to rising premiums.

The watchdog warned that some firms may also seek to cut costs in response to financial pressures, which could have an impact on the level of customer service.

This in turn could affect a firm’s ability to handle claims in an efficient and timely way.

The FCAs expectations

Mills wrote: “A key part of our work is ensuring that firms treat all customers fairly and that consumers get access to fair value products that meet their demands and needs.”

He stressed that where insurance customers are in financial difficulty, firms should give them appropriate support. This includes reassessing the risk profile of customers and considering whether other products better meet customer’s needs. Working with customers to avoid the need to cancel necessary cover, waiving fees for adjusting a customer’s policy and waving cancellation fees.

In December last year, the authority stated that will introduce a consumer duty in order to drive a “fundamental shift” in the mindset of financial services firms.

In the letter the FCA stated that the consumer duty sets high expectations for the standard of care it expects firms to provide for consumers.

In addition, Mills issued a ‘Dear CEO’ letter in January following a request from Michael Gove to review rising premiums for residential buildings.

The purpose of that ‘Dear CEO’ letter, according the authority, was for firms to provide insurance for multi-occupancy buildings, asking them to consider what action they could take to help leaseholders and others facing difficulties.

Next steps

Mills concluded in the latest letter: “We continue to monitor and scrutinise firms using our powers where necessary.”

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