The Financial Conduct Authority (FCA) introduced a new Consumer Duty to better protect users of financial services in the UK on 31st July 2023. It sets an even higher duty of care for insurers such as Chaucer, requiring us to make sure that we always put our customers’ needs and interests at the heart of everything we do.
The FCA has said it wants to “drive a fundamental shift in industry mindset” by raising standards, and helping all firms involved in providing insurance to deliver products that are fit for purpose, provide fair value, and help our customers meet their financial objectives.
Chaucer has taken significant steps to ensure that we are compliant with the new Consumer Duty. We will also support our brokers, underwriting agents and other business partners in meeting their own responsibilities to our customers.
For more information on the Consumer Duty, see the FCA website at: https://www.fca.org.uk/firms/consumer-duty
Alternatively, you may wish to contact your broker or other insurance intermediary.
What is the Consumer Duty?
At the highest level, the Consumer Duty is based on a new Principle 12 introduced by the Financial Conduct Authority (FCA) in its Handbook:
“A firm must act to deliver good outcomes for retail customers.”
This new principle is expanded in three Cross-Cutting Rules:
• A firm must act in good faith towards retail customers.
• A firm must avoid foreseeable harm to retail customers.
• A firm must enable and support retail customers to pursue their financial objectives.
The Consumer Duty sets a new standard of care that financial services businesses must apply to their customers when designing and distributing products and services.
The three Cross-Cutting Rules are underpinned by four Customer Outcomes:
• Products and Services are specifically designed to meet the needs of customers, and are distributed appropriately to a defined target market.
• Price and Value are set to ensure there is a fair balance between the price of products and services and the benefits they provide to our customers.
• Consumer Understanding: communications must meet our customers’ information needs and facilitate informed decision making.
• Consumer Support: customers are able to realise the benefits of our products and services without unnecessary barriers.
When was the Consumer Duty implemented?
For new and existing products or services that are open to sale or renewal, the duty came into force on 31 July 2023.
The Consumer Duty sounds like Treating Customers Fairly (TCF) – is it the same?
Treating customers in a fair and appropriate manner has always been a regulatory requirement of the financial services market and should not be a new concept to anyone.
Whilst the TCF principles have been in place since 2006, the industry needed to take further steps to ensure better customer outcomes.
The new Consumer Duty Principle sets higher standards of consumer protection across financial services and requires firms to take positive action to put customers’ needs first.
How does the FCA define a good customer outcome?
The FCA defines a good outcome as one where the customer receives a product that is designed to meet their needs, provides fair value and helps them achieve their financial objectives.
Chaucer aims to achieve this by communicating with and exercising oversight over the distributors of our products and supporting them in helping their customers to make effective, timely and properly informed decisions.
We will also ensure that our claims and complaints processes are easy for our customers to access and do not impose unreasonable barriers.
What is Chaucer doing?
We have increased our engagement with our Coverholders and Brokers to collect valuable information to help us assess our products and distribution strategies.
We have assessed our products and published fair value assessments including target market statements.
We are enhancing our processes for oversight of products throughout the whole product lifecycle.
We are improving our data collection to help us to focus on customer outcomes.
We are ensuring we have robust processes in place to identify root causes of poor customer outcomes and ensure that we are able to react quickly to put in place any required changes.
What should you be considering?
Understanding your responsibilities as a distributor under the Consumer Duty.
Ensuring you are able to demonstrate that you are acting to deliver good customer outcomes. This may include:
- Assessing your own distribution strategies.
- Completing regular product reviews and fair value assessments.
- Ensuring that products are distributed only to their target market.
- Sharing product information with manufacturers and obtaining product information from them.
How is Chaucer issuing evidence of our Fair Value Assessments?
Our current Fair Value Assessments including target market statements can be found on the Chaucer Group and Lonham websites. These will be reissued at least annually.