The importance of monitoring outcomes under Consumer Duty for the insurance industry
Background
In June this year the Financial Conduct Authority (FCA) published its findings[1] from a multi firm review which focused on the monitoring of outcomes in the insurance sector, which includes the point of claim. The FCA set out their expectations[2] for compliance under standard PRIN 2A.9 in December 2023.
The review covered a broad range of the insurance market including general insurers, life insurers and intermediaries.
The objective of the review was to focus on and understand how firms have approached and responded to the recently introduced Consumer Duty regulations, with a focus on monitoring, assessing and testing that the outcomes their customer receive; a further focus being customers who have either declared or undeclared vulnerabilities.
The Summary line of the review states that “Firms must regularly monitor the outcomes retail customers receive to identify whether they are meeting their obligations under the Consumer Duty.” Whilst this is a simple enough ask, there are several challenges faced by the sector when put into practice, one of these key challenges being the appropriate identification and segmentation of their customer base, and what data is available and should be used to achieve this, particularly when the customer is in a vulnerable position?
Consumer Duty
Consumer Duty regulations, sets out significantly higher and clearer standards of consumer protection across financial services sector, which includes the insurance market.
There are four main elements to the Consumer Duty outcomes which require firms to “act to deliver good outcomes for retail customers.”
These four Consumer Duty outcome elements are:
Products and Services
Price and Value
Customer Understanding
Customer Support
Although not specifically called out in the above elements of Consumer Duty, an underlying basis of these regulation is the requirement to ensure that the needs of vulnerable customers are met within a firm’s interactions with their customers and the product they provide to them, in this case insurance.
The FCA reviewed the processes, procedures, and data depth, breadth and quality used for engagement and monitoring of outcomes at the point of claim in relation to the above four points.
The key findings of the review
The FCA assessed the design of firms’ monitoring approaches, emphasising the need for a holistic view that integrates various data sources and metrics, some of which may not have been captured at the point of customer taking out the insurance policy. Good practice involved developing a comprehensive suite of metrics that are directly linked to customer outcomes, with appropriate analysis of trends, and action taken when issues have been identified.
- There is an over reliance on the monitoring of internal processes by insurers, where insurers are checking for operational process completion, rather than a focus on actual outcome for their customer. This suggests that firms are relying on their own internal processes rather than making taking a data driven approach to achieving the right outcome for their policy holders.
- There was a lack of evidence of ongoing monitoring for changes in circumstances. The FCA noted there was little evidence of firms understanding or monitoring for changes in circumstances may impact in the event of a claim. This is important when it comes to the event of a claim, does a customer have a different requirement for interaction or special focus?
- A lack of ongoing monitoring into outcome and timeliness of claim settlements. The FCA noted there was limited understanding and monitoring of claim settlements with some firms not monitoring, identifying or segmenting settlement type or numbers or percentage of declined claimed by customer types such as demographic or financial circumstance.
- There is an over reliance on existing data to comply with the new regulations. The FCA noted that there was a lack of utilisation of supplementary data that is available to augment analysis on customer outcomes, with most data coming from what was provided at the point of quote by the customer.
- Little or no monitoring of customers showing characteristics of vulnerability. Firms were unable to identify and monitor customers who showed signs of or had advised they were vulnerable. The FCA also noted that where firms are able to identify their vulnerable customers, most were unable to demonstrate how they have applied different approaches to monitoring the different segments of their customer base
- An over reliance on complaints or Net Promoter Score (NPS) data for outcome monitoring. The FCA noted there were some segments of the market that were reliant on complaints and NPS data for their insights of customer outcomes, these types of data generally do not provide a comprehensive view of their customer base, and often focus on the extremes of the customer relationship either positive or negative.
The first Consumer Duty annual reports were due for submission at the end of July ’24, so we will likely see the output and review of these from the FCA in due course. There will be an expectation on insurers to put in place robust action plans to mitigate any shortcomings identified.
Where Experian can support
Experian data has had a long standing and important role for insurers at the point of quotation to support and enrich captured information, to both enhance pricing decisions and help assess their customers’ ability to pay for a premium finance product.
The understanding, ongoing monitoring and being able to accurately segment their customer statuses, situation and demographic are key elements to help satisfy new Consumer Duty Regulations which have been a focus in this review, and thus ensure customers are receiving the appropriate outcomes.
Experian data can play a key role in helping organisations understand and segment their customer base as part of these requirements. This can be done at an individual customer level based on a wide variety of financial, demographic, behavioural, lifestyle, or vulnerability characteristics, and can include data on the asset being insured, for example automotive valuations. This allows firms to gain a deep level of understanding of their customer base both during the life of the customer interaction and following a claim being made for reporting purposes.
An example of where Experian Delphi for Customer Management (DCM) data could assist insurers with their reporting and segmentation requirements is to look at how financially stressed the customer is. Are customers who are more heavily indebted accepting lower than average market payouts due to their financial position?
In guidance the FCA published to help firms understand the regulations they stated that “We want consumers with characteristics of vulnerability to experience outcomes as good as those for other consumers,” therefore firms having a deep understanding of their customer base is key to compliance with the Consumer Duty regulations.
This data can allow firms to supplement and enhance the granularity of their monitoring and reporting of the customer outcomes including at the point of claim, so that different segments and demographics, or those with signs of vulnerability, including those that firms may not even be aware that exist within this customer base can be appropriately monitored and reported upon, which is a key call to action by the FCA in their review.
The data would allow firms to understand if their levels of claims payouts are in line with fair market valuations both at an asset level and when split by consumer demographics.
How can we help?
Experian data can also provide a significant enhancement to the understanding of customer status and circumstances to update on any changes during the course of the relationship, rather than solely relying on the supplied data which was captured at the beginning of the relationship. This could allow firms to significantly enhance their customer management practises and treatments in the event of interaction or claim and help firms provide customers with good outcomes.
The Experian analytics team bring extensive knowledge of this data and can support organisations with the interpretation, analysis and summary reporting, in order to help maximise the value of the data and reporting requirements under this regulation.
[1] Insurance multi-firm review of outcomes monitoring under the Consumer Duty, Financial Conduct Authority
[2] PRIN 2A.9 Monitoring of consumer outcomes, Financial Conduct Authority