A regulatory guide published by the financial services regulator in 2007 requires that “a customer’s experience should not be affected by whether a product or service was provided and distributed by a single institution or by two or more institutions”. This guide – The Responsibilities of Providers and Distributors for the Fair Treatment of Customers, or RPPD – is still very much in force and on 2 June 2015 the regulator (now the FCA) published results of its thematic review of delegated authority in the GI market, which examines how effectively firms are performing against this standard.
The latest FCA thematic review “Delegated authority: outsourcing in the general insurance market” runs to 40 pages and, in essence, finds that customer service delivery against the RPPD requirement is what might be termed as ‘patchy’. No doubt in the case of 21st century GI customer service, as with the celebrated 19th century curate’s egg, “parts of it are excellent”. Nevertheless, the review identifies some real gaps in the management and performance of delegated arrangements.
The review makes it clear that risks of poor service – “customer detriment”, in the regulator’s preferred phase – may arise in delegated distribution arrangements as well as in delegated claims handling. Some of the language of the review is markedly abstract on first reading, such as the following finding in relation to buying policies: “shortcomings in customer outcomes at inception were likely to persist through subsequent renewals, with no additional focus on customer outcomes at these points”.
Elsewhere points are made more directly, even abruptly, such as in the following extracts:
- “…when delegating underwriting authority insurers write products they wouldn’t otherwise underwrite”
- “The majority of the firms involved in our review did not appear to have appropriately assessed how the relevant rules and guidance within the Handbook applied to the portfolio of outsourced arrangements they had in place”
- “…a third of the firms in our review were unable to demonstrate that they had analysed the complaints information relating to the product, or considered taking any actions as a result”
The thematic review is based on a sample of practices in a range of GI firms and therefore has to be regarded as a serious and evidence-based examination of industry performance when delegated processes are used in sales/underwriting or claims handling. Some of the regulator’s criticisms of the real risks of poor customer service are couched in strong terms. Its press release states clearly that firms should “consider the findings of the report and make any necessary changes to ensure that customers are treated fairly and not at risk of detriment.”
The FCA commits to focusing on the risks identified in the review in its day-to-day supervision of GI firms and in market-level discussions with trade bodies. It is likely that these may not always be easy conversations, given some of the regulatory and governance shortcomings identified in the thematic review. We would strongly encourage you to read the review, given that delegated authority arrangements seem certain to remain very much under the regulator’s microscope for some time to come.