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PROTECT. LEGAL AND REGULATORY REVIEW JULY 2013. Oh No!!!!. Lunch 1.30. The Good News. It was only 8 weeks since I got you all nicely up to date So an “update” should be nice and quick. Lunch 1.30. And the Bad News?. A lot can happen in 8 weeks!. Why?.

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  1. PROTECT LEGAL AND REGULATORY REVIEW JULY 2013

  2. Oh No!!!! Lunch 1.30

  3. The Good News . . . • It was only 8 weeks since I got you all nicely up to date • So an “update” should be nice and quick Lunch 1.30

  4. And the Bad News?

  5. A lot can happen in 8 weeks!

  6. Why? • Because FCA is on the warpath and it has only one thing in mind . . . The Consumer Protection Objective “To secure an appropriate degree of protection for consumers”

  7. FCA will:- • Expect you in your:- • Product design • Product name • Product content • Product marketing . . • Even the environment in which you offer the product (c) Paginator Limited 2013

  8. To set and then fully meet . . . . • “consumer expectations”

  9. “Consumer Expectations” • These are only partly under your control • Consumers are being encouraged on all sides to increase their expectations • The lives they are leading are changing rapidly, and • The regulator expects you to change with them . .

  10. When are those expectations tested?

  11. Whenever the customer makes a claim

  12. Thematic Review into Claims Handling • Announced by Martin Wheatley at the BIBA conference on 15 May • “we are talking about enormously stressful periods in people’s lives. Touchstone moments” • “It would be very difficult, if not impossible, to defend any company if it was found to be aggravating these experiences by dragging its heels − or trying to wriggle out of its responsibility to pay legitimate claims. We buy insurance for peace of mind - not for a painful scrimmage with insurers”

  13. What will the Review cover? • “Themes across the general insurance market but with a particular focus on household and travel claims” • “We will conduct it in partnership with firms, as well as consumers” • “I want my team to obtain evidence directly from claimants on how they have been treated”

  14. What is FCA looking for? • “Does customer experience vary according to whether they bought insurance directly, through a broker or through an affinity scheme? • How good are insurers in explaining up front what will happen when a customer makes a claim? How well do they then keep them informed of progress? • Are payments being made in a fair and consistent way when they are due? Are companies acting ethically towards their customers? Is the claims department as well resourced as the sales team? • Findings, and final recommendations, are expected by Q4 2013 (c) Paginator Limited 2013

  15. What to Expect? • A very different approach to that from the FSA • Much less technical – and generally less collaborative • Simplistic demands imposed on the industry but expressed in language addressed to consumers • The changes demanded will appear unarguable - but may well gloss over core commercial issues affecting your business

  16. Why do I know this? • Because of TR 13/2 • Published late last month • What did it have to say?

  17. Plenty of basic sensible stuff . . . • Product governance in firms is not “always” effective • “Aspects” of products were not designed to meet customer needs • Product terms were not “always” clear and fair to consumers • “Some examples” of poor sales practice • “In some instances” claims handling was slow and unfair • Some firms were not adhering to complaints handling rules

  18. So - the conclusion is that there is . . . • Some ineffectiveness, with some aspects of some products not being well designed, and not always being clear and sometimes being sold badly with instances of poor claims and complaints handling • Surely that means . . . .

  19. There is a lot of . . . . • effective, well designed, clear and well sold mobile phone insurance out there which, in most instances, delivers to consumers at claims stage? • So that is good news!

  20. Headlines

  21. The Review addresses some fundamentals very well . . . . Senior Management Identify risk, compliance and cultural issues Learning from complaints and feedback Correcting operational shortcomings Operational /Product shortcomings Complaints and other feedback Re-designing products/services to meet customer needs Customers

  22. But look at this . . . .

  23. Is that a professional way for a regulator to approach . . . • a key issue facing the general insurance industry in 2013? • How does an insurer define the risk covered, and set consumer expectation, in a world where consumers are no longer expected to read documentation or retain even basic understandings? • Put another way FCA should be addressing with the industry . . . .

  24. Whether the traditional insurance policy is • Fit for purpose?

  25. Vital that . . . • Firms and PROTECT engage with FCA to ensure that a desire to achieve “good consumer outcomes” is undertaken without FCA “showboating” to the consumer lobby • There must be dialogue (not bullying) to avoid the industry being put into impossible positions – and ultimately withdrawing from cover, because • If consumer expectations are constantly and unrealistically raised the outcome can be . . .

  26. Disastrous – ask the . . .

  27. Now I have that off my chest . . .

  28. What else? • Some more on the Consumer Insurance (Disclosure and Representations) Act 2012 • Some matters European • A bit about incentives, and • News of more consumer rights on their way • and . . .

  29. Then lunch!!!!

  30. Consumer Insurance (Disclosure and Representations) Act 2012 • The Act tells us that you can’t expect the consumer to tell you things unless you ask him/her about them • You can’t turn what you are told into a term of your insurance • FOS have issued a Technical Note which explains FOS’s approach following the Act (no change but useful)! • FCA are consulting on changes to ICOBS to reflect the new law

  31. Matters European (1) • IMD 2 – will eventually arrive • Lots of ticking bombs e.g. affecting claims, tying, commissions . . . • Damage and debris for your business will depend on matters of a few words here and there (still to be resolved) • Keep it well on your radar even though implementation likely to be up to three years off

  32. Matters European (2) • Protection Insurance • Conflicting movements within Europe • Some concern to “learn from” the UK (sales experience) • However a fundamentally different attitude to the value of payment protection insurance . . . • Driven by EU initiatives designed to give responsible consumers the confidence to borrow

  33. Incentives • FCA have announced:- • “further work on whether firms are now managing the risk of mis-selling, driven by financial incentive arrangements in place for their staff” • “further work” is to see if you are adhering to FG13/01 issued by FSA in January 2013 • In that FSA reported 20 out of 22 firms assessed by FSA had features in their (staff sales) incentive schemes that increased the risk of mis-selling and were therefore in breach of the Principles for Business – and thus unlawful

  34. What should you be doing? • Checking that:- • products are sold to meet the needs of consumers, not driven predominantly by financial incentives and profits; • you properly identify, consider (and understand) how incentive schemes might encourage staff to mis-sell and put in place effective systems and controls “to adequately manage the increased risks of mis-selling arising from incentive schemes”; • “routine monitoring” of incentive schemes is not sufficient – nor are customer feedback surveys. You must have a full and effective risk based monitoring which looks for problems and corrects them • You are taking action to address any inadequacies

  35. God help you if you don’t!

  36. And be careful . . . • Risks to customers from incentive schemes may also arise in areas such as complaints handling, claims processing and even customer retention

  37. The Consumer Rights Bill • Announced in the Queen’s Speech • A huge consolidation of consumer protection law including bringing the UTCCR into the new Act • Not just a consolidation of UTCCR – but introducing Law Commission recommendations on extending the law to cover the fairness of “core terms” • And that (with FCA’s agenda - and powers) is . . . .

  38. DYNAMITE!!

  39. So when I show you this . . . Senior Management Identify risk, compliance and cultural issues Learning from complaints and feedback Correcting operational shortcomings Operational /Product shortcomings Complaints and other feedback Re-designing products/services to meet customer needs Customers

  40. You not only need to think . . . • about whether your current products are meeting (and designed to meet) consumer need and expectations; or • Think about the £2.8 million fine just given to PAS for failures to analyse root causes for complaints . . . • but also about what sort of product will meet and/or set consumer need and expectations in the future • Because you can be sure that this . . .

  41. If these thoughts are valuable . .

  42. Like many in this room . . .

  43. You can get . . . • These insights • Top quality legal and regulatory commentary • “Top up” niche legal, regulatory and compliance support, and even

  44. A shoulder to cry on . .

  45. On line . .

  46. By e-mail or

  47. Directly from me . .

  48. Thank You www.paginator.co.uk

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