On 26th June 2024, the Financial Conduct Authority (FCA) published the results of their insurance multi-firm review of outcomes monitoring under the Consumer Duty.
The results come from a review undertaken in December 2023, when the FCA contacted twenty of the larger insurance firms – general insurers, life insurers, insurance intermediaries and regulated third-party outsourcers which service insurers – and asked for their most recent board and/or committee reports. The reason for the request was to see how these firms monitor, assess, and test the outcomes customers are receiving, along with any actions firms had taken after identifying poor outcomes.
The responses were assessed by the FCA against specific monitoring requirements that are set out in PRIN 2A.9 and the guidance given to firms in Chapter 11 of FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty. The purpose was to:
- Determine themes in firm approaches
- Identify the good practices firms have employed to be consistent with the Duty
- Assess whether there are areas of improvement needed
It should be stated that the review focused on the larger firms in order to test the implementation of these new requirements and to share their findings. While the larger firms were selected, smaller firms are expected to use ‘proportionality’ to ensure they apply a commensurate level of resource with simpler governance/processes to the issue.
What was found in the review?
The review highlighted a wide variety in the quality of responses by firms, including a number of good and poor practices, which I have outlined below. The review showed that some firms showed good progress in developing a clear and comprehensive firm-wide approach to monitoring customer outcomes. However, it also showed that many firms need to make improvements in their monitoring to enable them to determine whether they are delivering good outcomes for retail customers, as required by the new Consumer Duty. While inadequate monitoring itself would not necessarily result in poor customer outcomes, monitoring is essential for firms to identify and remediate them.
What is a good/poor practice?
In FCA terms, a ‘good practice’ is behaviour that the FCA consider is likely to meet expectations for compliance with the standards in PRIN 2A.9. The FCA would expect any firm properly taking into account the purpose of PRIN 2A.9 to recognise these behaviours as likely to meet expectations for compliance.
In its review, the FCA looked at different areas of the duty identifying good and bad practice. These will make for interesting reading to firms, especially smaller firms who were not part of the review. Below I have outlined some examples of good and bad practice against the different areas as identified by the regulator:
|
Area |
Good Practice |
Bad Practice |
|
The design of monitoring approaches |
Developing a comprehensive suite of metrics |
Reliance on monitoring process completion rather than customer outcome |
|
Types of data |
Developing a range of outcomes driven data |
Repackaging existing data |
|
Interpretation and scrutiny |
Clearly articulated and scrutinised tolerances |
Data unlikely to facilitate scrutiny of challenge |
|
Monitoring different groups of customers, including customers with characteristics of vulnerability |
Monitoring outcomes of different customer groups, including those with characteristics of vulnerability |
Outcome monitoring which does not differentiate by customer group or characteristics of vulnerability |
|
Actions taken by firms to address poor outcomes |
Wide range of data to identify outliers, conduct analysis and take action |
Limited evidence of evaluating the impact of changes |
The FCA expects all firms regardless of size and resources, to meet the standards set by the Consumer Duty and adhere to its definition of good practice.
The FCA also assessed firm approaches for monitoring against the four Consumer Duty outcomes. For most of the firms in the Review, and across all four outcomes, the FCA stated that monitoring MI should be strengthened to ensure it is outcomes, rather than process-driven, and comprehensive enough to provide the relevant board or committee a reasonable view of whether the requirements of the Duty were being met.
What happens now?
Going forward, all insurers, insurance intermediaries and outsourced service providers operating within the insurance sector should consider these findings and review the good and poor practice observations. This review is also relevant for retail financial services firms in other sectors.
