UK: the FCA's thematic review of insurance claims processes

In a speech on the growth of UK insurance entitled "Meeting the growth challenge", Martin Wheatley, Chief Executive of the Financial Conduct Authority (FCA), announced the launch of a thematic review of the claims process in the insurance market.  Although this review will have a particular focus on travel and household claims, it will look at themes more widely across the market.  The findings and final recommendations of the review are expected to be published by the final quarter of 2013.    

Although Mr Wheatley acknowledges that the general insurance industry has been characterised over the years by its attention to customer service, and that it has performed consistently to high standards, he suggests that:

• complaints about insurance products are on the rise
• they are more frequently being upheld in favour of the customer, and
• the large majority of such complaints are directly related to claims

He cites Which? as suggesting that 64% of complaints about insurance relate to claims - although this might perhaps not be so surprising a figure given that (as Which? acknowledges), the acid test of the quality of an insurance policy only comes when one needs to make a claim.  The most common complaints about claims identified by Which? include:

• delays in dealing with a claim (sometimes months in responding to urgent and expensive claims)
• poor communication
• frustration at having to deal with different people each time one calls
• the choice and standard of repairers nominated by insurance companies

The FCA therefore considers that it is necessary to address the possibility that policy holders may be receiving poor customer service, facing unnecessary delays, or having perfectly valid claims unfairly declined - at times of particular stress in their lives.

Mr Wheatley has called on firms to consider whether their claims culture is fit for purpose in the modern world.  He also acknowledges that in the longer term, the review may lead to amendment of the applicable rules.

In embarking on this strategic review, the FCA is deliberately adopting a forward-looking, consumer facing stance.  Mr Wheatley says he is seeking to determine whether there is a "case for the industry to answer": the potential for enforcement to follow the review is reasonably plain.  Mr Wheatley warned that:

"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."

As part of the review, the FCA will be taking evidence directly from claimants on how they have been treated, and will consider:

• whether their experience varies according to whether they bought insurance directly, through a broker or through an affinity scheme
• how good insurers are at explaining up front what will happen when a customer makes a claim
• how well insurers then keep customers informed of progress
• whether payments being made in a fair and consistent way when they are due
• whether companies are acting ethically towards their customers
• whether the claims department is as well resourced as the sales team

Firms across the insurance sector will wish to consider how they might benchmark their respective claims processes against these indicators, and whether in the light of that assessment, there may be cause for any improvements to be made. 

In addition, of course, Discussion Paper 13/1 - "How the FCA could be more transparent" - contains a proposal to compel insurance firms to publish claims data.  The ABI has strongly argued that it is vital that the regulator should take the lead in developing a framework  to ensure that information is delivered to consumers in a consistent and contextualised manner, in consultation with the industry, whilst recognising the disparities in the structures of different insurance products.   The ABI has strongly recommended that if the proposal is to be pursued, then the regulator should consider running a trial/pilot looking at one non-core general insurance product line and perhaps one protection product line over a 18-24 month period to ascertain if publishing a contextualised set of claims data would indeed assist consumers in making decisions.

Other areas of regulatory focus

Martin Wheatley's speech also refers to a number of other potential issues on the FCA's regulatory radar, including issues over trust, poor quality of advice, information asymmetries and misaligned incentives, and more specifically in relation to conflicts of interest, client assets, regulatory fees, disclosure and cost (including whether customers are adequately informed about the differences between policies and charges after sale).