The FCA sets out its expectation on the cost of living and insurance in its latest Dear CEO letter

The FCA outlined several trends and risk in insurance. This research concluded that while households are looking to reduce spending, they do not yet appear to be targeting insurance cost. However, as pressures on consumers continue to rise this could manifest in the insurance space in many ways including:

• How customers approach renewals
• Use of premium finance
• Decisions on whether or not to buy certain types of insurance
• Cancellation of policies

FCA Expectations

In the letter, the FCA set out its expectations of firms in the insurance sector.  These expectations covered:

• Treatment of vulnerable customers and customers in financial difficulty
• The need to ensure all products provide fair value and meet customer demands and needs
• Premium finance and whether it provides fair value for customers
• Underinsurance and the need to ensure products meet customers’ demands and needs
• Claims and the requirement to handle them fairly and promptly
• Multi occupancy buildings insurance and the need to take leaseholders into account in fair value assessments

Vulnerable customers

Firms are required to consider the needs, characteristics and objectives of customers including those who are vulnerable to ensure they deliver good customer outcomes. Customers in financial difficulty should be given suitable support in line with the FCA’s Covid insurance and premium finance guidance.

Fair Value Products

Firms need to consider whether products present fair value for customers and whether they meet customers’ demands and needs.

Premium Finance

Clear information should be given about the cost of any premium finance arrangement making it clear that this makes the contract more expensive.

Premium finance should be considered as part of a firm’s fair value assessment. The fair value assessment should demonstrate how the firm has considered the additional cost,  including the relationship between the price and the quality (such as the benefit of spreading the cost.).  In particular, high APRs and lower associated credit risk could be in breach of the FCA rules and require close attention.

Underinsurance and the uninsured

It is important that firms ensure that when they propose contracts of insurance, they meet customers’ demands and needs. Information given to customers should be appropriate and should contain a range of information, including a summary of insurance coverage and main exclusions.

Claims

Firms are reminded of the need for prompt and fair handling of claims. Firms may see an increase in fraud, but care should be taken to ensure fraud prevention methods do not lead to additional and burdensome processes or delays in the payment of claims. Care should be taken to ensure service levels remain appropriate when taking steps to reduce costs.

Multi occupancy buildings

Whilst many freeholds fall into the commercial category, care should be taken to consider the obligations owed to leaseholders who are more likely to be retail customers. Leaseholders often pay for the insurance through their service charge arrangements and cannot shop around for a better deal. Leaseholder needs should be considered in relation to fair product value.

Next Steps

Firms should ensure that they are properly prepared to support their customers during this challenging time and produce good customer outcomes in line with the Consumer Duty.

Additionally, the FCA is considering their insurance Covid guidance for customers in financial difficulty. Which may include a consultation later this year.