Introduction
One year after the introduction of the FCA’s Consumer Duty, the regulatory landscape for financial services firms has seen significant changes. Designed to set higher and clearer standards of consumer protection, the Duty has required firms to embed the principles of fairness, transparency, and customer-centricity into their operations. This Blog reflects on the FCA’s findings over the past year, focusing on general insurance intermediaries, and examines the successes, challenges, and opportunities for further improvement.
Overview of the FCA Consumer Duty
The Consumer Duty was introduced to set the standard for how firms treat their customers. It comprises three core elements:
1. The Consumer Principle: Firms must act to deliver good outcomes for retail customers.
2. Cross-cutting Rules: Firms must avoid causing foreseeable harm, enable customers to pursue their financial objectives, and act in good faith.
3. Four Outcomes: Firms are required to ensure appropriate outcomes in products and services, price and value, consumer understanding, and consumer support.
This holistic approach to consumer protection demands accountability across all touchpoints of a customer’s journey, making it one of the most comprehensive regulatory initiatives in recent years.
FCA Findings: General Insurance Intermediaries
Over the past year, the FCA has closely monitored how general insurance intermediaries have adapted to the Consumer Duty. Their findings provide valuable insights into the state of compliance and the challenges faced by the industry:
1. Product Governance
– Successes: Many intermediaries have made significant progress in reviewing their product offerings to ensure alignment with customers’ needs. Simplified products and clearer policy terms have been key areas of improvement.
– Challenges: However, the FCA identified instances where intermediaries failed to adequately assess whether products offered fair value. Some firms struggled with gathering and analyzing sufficient data to make these determinations.
2. Price and Value
– Successes: Transparent pricing models and efforts to eliminate hidden fees have been applauded by the FCA. These measures have enhanced customer trust and satisfaction.
– Challenges: The FCA flagged concerns about the justification of premium increases and inconsistencies in pricing for similar customer profiles. Firms were urged to ensure that pricing structures reflect the value delivered.
3. Consumer Understanding
– Successes: Intermediaries have adopted innovative approaches to enhance consumer understanding, such as the use of plain language, infographics, and personalized explanations of policies.
– Challenges: Despite these efforts, the FCA noted that some firms continued to rely on overly complex jargon, which impedes customer comprehension. Additional work is needed to test whether communications achieve the intended outcomes.
4. Consumer Support
– Successes: Improved customer service channels, including digital and automated solutions, have been highlighted as a step in the right direction.
– Challenges: The FCA observed cases where customer support fell short, particularly in handling claims and complaints. Inconsistent service levels and long response times were cited as areas requiring immediate attention.
Probability of Fines and Enforcement in 2025
Based on the FCA’s findings, there is a heightened probability of fines and enforcement actions in 2025 if firms fail to address the identified shortcomings. Key risk areas include:
– Non-Compliance with Product Governance Standards: Firms that continue to offer products misaligned with customer needs or fail to demonstrate fair value may face significant regulatory penalties.
– Pricing Disparities: Persistent inconsistencies or unjustified premium increases could attract enforcement action, particularly if they result in consumer detriment.
– Inadequate Consumer Support: Poor handling of claims and complaints remains a critical concern. Firms that do not implement meaningful improvements may be at greater risk of FCA intervention.
– Failure to Embed Consumer Understanding: The FCA’s emphasis on effective communication means firms that rely on complex or unclear language could be held accountable for failing to meet the Duty’s standards.
The FCA has shown a willingness to act decisively where firms fall short of expectations, and 2025 is likely to see an increase in enforcement actions as the regulator seeks to reinforce the principles of the Consumer Duty.
Opportunities for Improvement
The findings indicate that while general insurance intermediaries have made commendable strides, there is room for further improvement. Key opportunities include:
– Enhanced Data Utilisation: Investing in robust data analytics tools can help firms better assess customer outcomes and refine their offerings.
– Ongoing Staff Training: Regular training sessions on the Consumer Duty’s requirements can ensure that employees at all levels are equipped to meet regulatory expectations.
– Proactive Customer Engagement: Engaging with customers through surveys, focus groups, and feedback mechanisms can provide valuable insights into their needs and preferences.
– Collaboration with the FCA: Maintaining an open dialogue with the FCA can help firms stay ahead of regulatory expectations and demonstrate a commitment to compliance.
Conclusion
One year on, the FCA’s Consumer Duty has set a strong foundation for elevating standards of consumer protection in the general insurance sector. While the journey is ongoing, the findings highlight both the progress made and the challenges that remain. For general insurance intermediaries, the focus must now shift to building on these achievements and addressing areas of concern to ensure sustained compliance and customer satisfaction. By prioritising transparency, fairness, and customer-centricity, firms can not only meet regulatory requirements but also foster trust and loyalty in an increasingly competitive market.
For information on how we can assist your firm’s consumer duty and conduct risk & compliance performance contact us at info@cordcomply.co.uk and we will be happy to discuss your perceived needs.