FCA Review of Consumer Duty Outcomes Monitoring Across the Insurance Industry

In this blog we take a look at the FCA's recent review of Consumer Duty outcomes monitoring across the insurance sector.

On 26 June the FCA published its findings from a multi-firm review of the insurance sector's ongoing monitoring of outcomes under the Consumer Duty. 

At the end of 2023 the FCA requested the most recent board and / or committee reports from 20 large insurance firms (including those operating across general insurance and life insurance) to review how those firms are monitoring, assessing, and testing consumer outcomes and the actions being taken after identifying poor outcomes. The publication of the findings comes 11 months after the implementation of the Consumer Duty for open products.

At its simplest, the Consumer Duty aims to ensure good outcomes for consumers and this review demonstrates the FCA's commitment to monitoring the implementation of the Duty.

Some firms were able to demonstrate good practice, with the FCA noting that some had been able to show a clear causal chain from the setting of clearly defined customer outcomes, monitoring of those outcomes, identification of poor outcomes and appropriate action then being taken. In very broad terms, the FCA's expectations include that firms should identify relevant sources of data for assessing outcomes and then subject that data to an appropriate level of scrutiny.

However, the FCA also noted that some approaches to monitoring were not coherent or in the early stages of development, which is perhaps surprising given that we're now 11 months beyond the Duty's implementation for open products. They were also critical of firms who focussed on processes being complied with rather than the outcomes actually being delivered. In some cases, there was noted to be an absence of clear evidence that monitoring of outcomes had led to proactive action to improve outcomes. This underlines the fact that the FCA will not just want firms to identify poor outcomes, it will expect them to take prompt and decisive action to rectify any issues with these. 

The FCA also found an inconsistent approach to the monitoring of outcomes for distinct groups of customers, the most obvious category being those with characteristics of vulnerability. The FCA now expects firms to identify whether vulnerable customers are receiving worse outcomes than non-vulnerable customers.  If so, they will of course be expected to rectify this. Followers of the Consumer Duty will know that vulnerable customers have been a key area of concern for the FCA since implementation and the attention given to these customers here shows that this is unlikely to change.

Price and value were additional areas of concern, and the FCA noted that firms should ensure they keep a monitoring record of commission, operational costs and charges regarding the products they offer, with a particular mention of insurance and insurance intermediaries being required to do this.

Some firms were praised for their efforts in redesigning their customer communications, albeit this did not appear to apply across the board. Firms will need to focus on a variety of customer understanding metrics and be prepared to develop new approaches to monitor these.

The FCA has requested information regarding any actions taken following firms' identification of poor consumer outcomes.  It will be crucial for firms to be able to identify and set out what improvements a customer has received following a finding of a poor outcome. Firms will want to pay particular attention to the monitoring systems that they currently have in place and implement any required changes as soon as possible.

FCA Expectations

The review does recognise that the outcomes in question will vary from firm to firm depending on their strategy, the nature of the products and services as well as their target markets but that those with clearly defined and specific outcomes were better able to monitor them. 

The FCA expects all within the insurance sector (and those in retail financial services firms) to consider the published findings, which can be accessed here.