Consumer Duty in insurance: What an in-depth review of the sector reveals about firm performance

The FCA recently conducted an in-depth review of the insurance market, providing valuable insights into what good practice looks like with regards to implementing Consumer Duty.

This review highlights several key themes and offers practical advice on how businesses can develop a strong level of responsiveness to ensure positive customer outcomes. Below, we explore these themes, providing guidance on how insurers can align with best practices.

Building a strong causal chain for positive customer outcomes:

One of the key insights from the FCA’s review is the importance of establishing a well-defined causal chain that links business actions to customer outcomes. A good causal chain should include the following steps:

1. Clearly defined customer outcomes: Begin by establishing clear and specific customer outcomes that your business aims to achieve. These outcomes should be realistic, measurable, and aligned with customer needs
2. A suite of metrics: Develop a comprehensive set of metrics to monitor these outcomes effectively. These metrics should be carefully chosen to ensure they accurately reflect the performance and value of your insurance products
3. Identification of poor or potentially poor outcomes: Regularly assess the metrics to identify any poor or potentially poor customer outcomes. Early identification allows for timely interventions
4. Investigation and action: Upon identifying poor outcomes, conduct thorough investigations to understand the root causes. Where necessary, take corrective actions to rectify issues and improve customer experiences
5. Evaluation of customer outcomes: Continually evaluate customer outcomes using the targeted metrics. This ensures that the actions taken are effective and that customer outcomes remain positive

Key Areas of FCA Feedback and Practical Guidance

The FCA’s feedback identifies five critical areas where insurers should focus their efforts to meet Consumer Duty obligations effectively.

1. Designing Effective Monitoring Approaches

A robust monitoring approach is crucial for ensuring good customer outcomes. The FCA highlights the following best practices:

• Broad range of metrics: Use a broad range of metrics that can effectively identify both good and poor consumer outcomes. This range should be tailored to the specific products and services offered by the insurer
• Meaningful metrics: It’s important to ensure that the metrics chosen are meaningful and not just a formality. The focus should be on gathering information that provides real insight, rather than merely completing a process
• Claims monitoring: One area that could see improvement is the monitoring of claim settlements. Insurers should ensure that their products continue to offer good value to customers after a claim is settled

2. Selecting the Right Types of Data

Data selection is pivotal in meeting Consumer Duty. The FCA advises:

• Objective-driven metrics: The best practice involves identifying the objective under consumer duty—such as ensuring good value—and then designing metrics specifically aligned with this objective.
• Avoid repackaging data: Instead of repurposing existing data that was originally gathered for other purposes, focus on developing new data that directly supports the objectives under consumer duty
  

3. Interpretation and scrutiny of data

The interpretation and scrutiny of data are essential for maintaining high standards. Insurers should consider the following:

• Key performance indicators (KPIs): Identify clear KPIs and establish the levels at which they should be maintained. This will help in consistently monitoring performance
• Senior-Level Ownership: Ensure that there is ownership at a senior level for these KPIs. If performance drops, there should be clear accountability and a structure in place to address the issues swiftly
  

4. Monitoring different groups of customers, including vulnerable groups

The FCA emphasises the importance of monitoring different customer groups to ensure fair treatment:

• Smart Use of metrics: Use metrics intelligently to capture product performance across different customer cohorts. This allows insurers to evidence that vulnerable consumers, and those with varying characteristics, are receiving appropriate value and service
• Segmentation of data: Data that aggregates all customers together will not suffice. Insurers must segment data to ensure that they can monitor and evidence the service provided to vulnerable groups effectively
  

5. Taking Action to Address Poor Outcomes

Finally, the FCA stresses the importance of taking decisive action when poor outcomes are identified:

• Effective Data Collection: While data collection is crucial, it is the actions taken in response to the data that truly matter. Insurers should not just gather data but should also have a clear plan for addressing any poor outcomes that the data reveals
• Proactive Response: Ensure that there is a proactive approach to responding to poor outcomes, with clear procedures for making improvements where necessary

Conclusion

The FCA’s review provides valuable guidance on how insurers can implement Consumer Duty effectively, ensuring good customer outcomes. By following the best practices outlined above—ranging from establishing clear customer outcomes to taking decisive action on poor outcomes—insurers can not only comply with regulatory expectations but also enhance their service delivery and customer satisfaction.