Treating customers fairly – what?

Those who think the regulator\'s TCF initiative is insulting to the integrity of the insurance industry have not experienced the impact when things go wrong, says Richard Griffiths

The British Insurance Awards were held at the Royal Albert Hall on July 6. The guest speaker was Lord Hunt of the Wirral, the former Conservative secretary of state for employment who now chairs some of the working committees within the Chartered Insurance Institute.

In his speech he wasted no time in making a number of scathing remarks about the Financial Services Authority and its regulation of the insurance market since the beginning of this year.

On the issue of Treating Customers Fairly, Lord Hunt felt insulted that the FSA should even insinuate that insurance brokers and companies were not already treating their customers fairly.

Some readers will be old enough to remember Dr Savundra whose car insurance company went into liquidation in 1966 leaving 400,000 motorists stranded without cover, including my father. The fact that I can remember the event 40 years on gives you some idea of the impact it made at the time.

More recently, members of the defunct Equitable Life have voiced their grievances through legal action against the company, while the embers are still glowing from the collapse of Michael Bright’s Independent Insurance in 2001. If you are interested in this subject, go to www.actuaries.org.uk where there is a 65-page report entitled ‘Insurance Company Failure’.

At the risk of upsetting Lord Hunt, I would say that not all insurance policyholders have been enamoured by the treatment they have received from life and general insurance companies in the past.

By coincidence, July 6 also saw the publication of the FSA’s 60-page document Treating customers fairly – building on progress. The document summarises the findings of 12 months of supervisory work carried out by the FSA reviewing industry practice in a number of areas.

It includes cases studies developed to assist firms in deciding what issues they need to look at to ensure that they have built fair treatment of customers into the way their business operates.

It is impossible to summarise TCF in a single page article, so I thought it best to pick out some salient comments that have appeared in the trade press this year (see box).

As Mark Roberts of the IFS asks – what does TCF actually mean? Roberts says one of the easiest way for firms to prove they are compliant with the regulations is to show evidence of training that staff have gone through and have records of the advice given and the circumstances it pertains to.

Documentation is imperative and this is the case not only in relation to TCF but also across the regulatory regime more generally.

Not surprisingly, a number of training companies are now offering courses on the subject of TCF. I am indebted to the Chartered Insurance Institute, one of the most reputable companies providing training facilities to the industry, for giving me with an insight into its course content.

While the FSA expects firms to build TCF into everyday culture and operations, the CII recognises that the process is not as straightforward as it sounds. The main stages, according to the CII training material, are:

  • Defining what treating customers fairly means for the firm.
  • Identifying any gaps in the firm’s current actions and what it needs to do.
  • Forming an action plan to close the gaps in the firm’s operations.
  • Saying who is accountable for delivering each part of the action plan.
  • Agreeing the measures to be taken to ensure TCF is implemented.
  • Monitoring implementation against action plan and ideal outcomes.

Each firm needs to give careful thought, at the highest level, to its perception of treating customers fairly and how this should translate into the firm’s operations.

One firm may decide on an approach which is different from another but as long as the principle of TCF is at the heart of each, they may be equally effective and acceptable.

The firm’s business and the customers it targets will have a significant impact on this.

Returning to the contents of the FSA document, it concludes by itemising a number of steps the FSA will be taking to move the TCF initiative forward.

A TCF conference will be organised later this year. The FSA will help smaller firms to address TCF by taking account of its principles in developing plans for thematic work directed at smaller firms. The FSA will also look to raise awareness of TCF with smaller firms at regional seminars and through its newsletters.

What the industry thinks of TCF

Mark Roberts, head of faculty financial regulation, Institute of Financial Services

“How can you treat a customer fairly if there is no laid-down definition of what treating customers fairly actually means? This has been the conundrum facing advisers and product providers as the FSA presses forward with its TCF initiative.

“One of the driving forces behind the initiative was the fact that after clients had been sold a product, the follow-up service was non-existent and where clients had problems they were cut adrift to deal with them on their own.

“Another driver was the need to make sure that providers and advisers were designing and marketing products for those who needed them and not those who they thought they could take advantage of.”

Ian Giles, marketing director, Purely Mortgages

“Treating Customers Fairly is an initiative from the FSA that should be welcomed by all professional mortgage brokers. It’s simply what we should have been doing all along.”

Chris Cummings, director-general, AMI and AIFA

“There is a strong element of proportionality in the FSA document – not expecting small firms to have the same level of resources as large firms. The regulator makes a point of stating that TCF shouldn’t mean more work and bureaucracy for firms and that it has always been with us. Also, there shouldn’t be any need to hire expensive consultants to inflict TCF on the business. However, there are some comments that firms must take note of. The first of these is a statement that everything said in the paper applies to the mortgage market so there’s no ‘get out of jail free card’ to be played here.”