How the Consumer Duty interacts with General Insurance Pricing Practices (GIPP)

The consumer support outcome is more than “clear, fair and not misleading” under Principle 7. Firms need to support customers throughout the product lifecycle, including at the point of sale, renewal and claim. The FCA expects firms to provide customers with the information they need in an understandable way and at the right time, so they are equipped to engage confidently with insurance products and services and take responsibility for their decisions.

The FCA stated that firms need to tackle issues in general insurance and protection where consumers were not always supported to make good decisions to advance their financial objectives. The FCA gave examples of good practice, such as providing a range of different contact channels and proactive communications to help progress claims. Poor practice included failing to provide easy and accessible options for cancelling auto-renewals.

The FCA observed that firms often approach communications from a legal perspective rather than focusing on customer needs and presenting information in a digestible way. For example, failing to focus on whether customers understand what the product or service does (and does not) cover and if the information provided across different documents is consistent.

The Consumer Duty introduces a new requirement to test customer understanding of the information provided in key communications. Firms also need to monitor consumer understanding, the reasons for declined claims, any common themes and indications of shortcomings that need to be improved.

This may also benefit firms by resulting in a smoother claims process and less confusion over what is covered and excluded for a product or service.

The FCA emphasised the importance of monitoring claims ratios, declined claims, lapse rates and complaints to demonstrate good customer outcomes. This is not covered in PROD.

It is worth noting that the definition of “product manufacturer” will change as part of the Consumer Duty. This will broaden the scope to those who ‘issue, manage, operate and carry out’ an insurance product. For closed books, the definition is expanded to capture those who ‘created, developed, designed or issued’ the product as well as those who ‘manage, operate, carry out or underwrite’. This will have an impact on firms that manage run-off, who may have previously considered themselves to be out of the scope of the GIPP rules.

There is limited reference to vulnerable customers in the PROD rules. In contrast, the Consumer Duty makes clear that vulnerable customers within the target market (or sub-groups of the target market) are a key consideration for both product design and the distribution strategy. Insurers must determine if the product continues to meet the needs of the customer base and whether there are features that could cause harm to particular customers over time. 

It is noteworthy that the FCA has now included ‘peace of mind’ as part of the value offered by insurance products, whereas it had previously refrained from doing so. This was presumably because ‘peace of mind’ is a subjective concept and is not something that can be measured or quantified. This suggests a change in the FCA’s thinking and should now be incorporated into a firm’s analysis of value.

Whilst the pricing remedy (i.e. the ban on price walking) only applied to home and motor insurance, the Consumer Duty is much wider and should be considered for renewal pricing outside of home and motor, and potentially outside of general insurance products.