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Six Months of Consumer Duty: Reflections, Challenges, and Opportunities

As we approach the six-month mark since the launch of Consumer Duty, it signifies the most significant regulatory shift in the financial services industry in the last ten years. This landmark initiative serves as a clear directive for the industry to enhance its commitment to acting in the best interests of consumers.

The repercussions of this substantial change continue to affect many firms, particularly in the areas of customer communications, outcome reporting, pricing, and fair value. The regulatory body has swiftly rolled out action plans and initiated interventions against both firms and accountable individuals.

Despite the first sprint to meet the July 2023 deadline, this regulatory journey is proving to be more of a marathon as firms and regulators unravel the complexity and breadth of the regulations.

The demand for insurers to prioritise customers is not only escalating due to stringent regulations but is also significantly encouraged by consumers themselves.

The timing of the Consumer Duty couldn't be more fitting. In the past 12 months, we've seen unprecedented spikes in premiums, consumers grappling with the deepening cost of living crisis, and complaints reaching a five-year high. This convergence creates a perfect storm, exposing consumers to heightened financial risks.

Consequently, the landscape of customer expectations from insurers is undergoing a transformation. Only those who actively understand how to align with these evolving expectations will thrive in a Consumer Duty-centric environment.

If firms do not meet customer expectations and without intervention from the industry, the existing expectation gap will grow. The Consumer Duty underscores the importance for firms to ensure positive consumer outcomes.

Firms that have wholeheartedly embraced the new Duty view it as an opportunity to forge closer connections with their customers, actively driving positive and authentic adoption of the changes. But sadly, some firms have just used it as an opportunity to re-package data they already hold without giving enough thought or detail to the customer outcomes or consumer vulnerability.

The SM&CR and Consumer Duty go hand-in hand

The Consumer Duty looms large across the insurance industry, but it is not a solo act. The existing Senior Management and Certification Regime (SMCR) plays a crucial role, ensuring senior managers are held personally accountable for delivering good customer outcomes. This means no light-touch solutions – continuous compliance is expected.

From reviewing job descriptions and assigning clear responsibility within SMCR frameworks to ensuring new senior managers understand the Duty, firms need to act now. The FCA will be watching closely, expecting staff at all levels to contribute, as outlined in the new Individual Conduct Rule 6.

But it's not just about ticking boxes. The Consumer Duty presents an opportunity. By reviewing products, pricing, communication, and customer support, firms can not only enhance compliance but also demonstrably improve customer value.

By embracing SMCR and taking proactive steps, firms can navigate the Duty with confidence, ensuring good outcomes for both them and their customers.

The Next Milestone

Six months post-implementation, we now find ourselves halfway to the next milestone on 31 July 31, 2024. By then, firms should have assessed their closed product ranges.

The FCA defines closed products as products which are no longer marketed or distributed to retail customers nor open to renewal. 

If existing customers can continue to make payments under the existing product terms, this would still be considered ‘closed’ if the product or service is not open to new customers. For example, a pension product that is no longer sold to new customers, but where existing policyholders can continue to pay in contributions, would be considered closed.

It is up to firms to consider each product and decide whether it is closed, and if it falls within the scope of Consumer Duty.

Firms must then supply evidence of regulatory integration, initiated regular reporting on positive customer outcomes, and critically, firms must have eased their Board in formally evaluating the embedding of Consumer Duty within their organisation. Firms must supply compelling evidence of wholeheartedly adopting the new principle, ensuring their culture prioritises customer-centric strategies.

The FCA are trying to ensure that forms bring closed products up to the same standards as products currently available.

There is no one-size-fits-all approach to implementation and integration; each firm has interpreted the Duty's implications for its organisation and culture uniquely. There is no quick fix to address every aspect of the rules, as the regulation is intentionally challenging, compelling every firm to meticulously assess its operations and their alignment with the Duty's essence.

What Next?

The FCA has set out its intentions to ensure consumers have a consistent level of protection across the financial services industry the implications of this on firms differs depending on the nature of the products sold. The challenges of meeting the second stage of the duty could be more problematic for firms selling closed products.

Whether you're seeking guidance on the Consumer Duty, SM&CR or have questions about regulatory responsibilities in general, get in touch. We'd love to help you.

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