Expectations from firms to support customers in financial difficulties
This short-read explores the regulatory expectations from insurance and consumer credit firms when it comes to helping customers in financial difficulties caused by COVID.
Introducing the FCA expectations
Since the eruption of the COVID-19 pandemic, regulators such as the FCA have been fast in responding and providing both guidance and temporary rule changes to support firms and consumers alike.
Following a short consultation (available here), the FCA have published further measures to support individuals in financial difficulties. In this short-read, we will be reviewing the published guidance for insurance and consumer credit firms; as the guidance has come into force on 18 May 2020 (available here).
"This guidance is relevant to enforcement cases and the FCA may take it into account when considering whether [...] the conduct in question fell below the standards required by Principle 6."
In summary, the targeted measures require firms to consider what options they can provide to customers who are in a financial difficulty due to COVID-19. These options can include:
Reassessing the risk profile of customers - This may have changed because of coronavirus and there may be scope to offer customers materially lower premiums.
Considering alternative products - If alternative products better meet the customer’s, firms should revise the existing cover or alter the cover completely. For example, a motor insurance customer might no longer need associated add on cover such as key cover or could be moved from fully comprehensive cover to third party fire and theft.
Considering waiving fees - firms should consider waiving cancellation and other fees associated with adjusting customers’ policies.
Where the above fail to eliminate the customers’ temporary financial difficulty, the FCA would expect firms to offer (and grant) payment deferral. Such payment breaks should only be offered where it is in the customers’ best interest and should be for up to 3 months.
Where none of the above actions achieve the temporary relief for consumers, firms are required to consider other measures, such as:
accepting reduced repayments, or rescheduling the term
waiving missed or late payment fees
permitting a customer to amend their repayment date without any cost
Please note, the publication is an FCA guidance, however it may be relevant in enforcement cases as the FCA may take it into account when considering whether the conduct in question fell below the standards required by Principle 6 (if this happens).
What type of customers qualify for the relief measures?
Whilst firms are encouraged to support all stakeholders under the Principles of Business, the insurance element of the guidance published are specific to only customers who are deemed to be “eligible complainants” under the DISP rules; therefore including individuals and small firms.
What insurance contracts are captured by the Guidance?
As the guidance is aimed at supporting individuals in financial difficulties, the guidance only captures non-investment insurance and pure protection contracts. Re-insurance and investment-based contracts are excluded.
Do I need new Systems and Controls to comply with the guidance
Firms should review how they can comply with the guidance using he existing systems; but where required, the necessary changes would need to be implemented. The FCA does recognise the additional challenges posed on firms and therefore the guidance only requires firms to support customers who expressed financial difficulties (as opposed to prompt active engagement with all policyholders).
What to consider in case of payment deferral?
the remaining term of the credit agreement
the customer’s ability to repay the accrued debt within the remaining term once the payment deferral period ends
whether it may be possible for the customer to get an extension to the insurance policy and credit agreement, and
the impact of the payment deferral period on the customer’s ability to get credit to pay for an insurance policy in instalments in the following year
Where customers cannot afford to resume payments at the end of the payment deferral period, firms should work with them to attempt to resolve these difficulties before payments are missed
We can offer extensive support to ensure full compliance, from self-assessment, remote support to on-site readiness review.
If you have any questions about how to comply with the new guidance or its impact on you, please feel free to get in touch.