Luke Holloway examines why the Covid-19 pandemic has increased the number of vulnerable customers and what the insurance profession is doing in response
The UK Financial Conduct Authority (FCA) has launched comprehensive guidance for firms on the fair treatment of vulnerable customers, following research among tens of thousands of adults.
The guidance found the Covid-19 pandemic had “reversed the positive trend in vulnerability” due to widespread redundancy, reduced working hours, over-indebtedness and low levels of savings.
The FCA’s Financial Lives survey showed that 27.7 million adults in the UK now have characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience or low capability. Not all people with these characteristics will suffer harm, the FCA says, but they may limit people’s ability to make reasonable decisions or put them at greater risk of mis-selling.
The guidance and the subject overall were discussed at the recent Association of British Insurers (ABI) conference, which was held digitally for the first time ever.
Nisha Arora, director of consumer and retail policy at the FCA, presented the guidance, saying: “Protecting vulnerable consumers remains a key focus for us and, given the impact of the coronavirus pandemic, it is more important than ever that firms get this right.
“Between March and October last year, we have seen a 15% rise in the number of customers with vulnerability characteristics in the UK. This is driven by two main factors: people experiencing negative life events, which has increased by 45%; and people suffering low financial resilience, which has increased by 35%. This means that these individuals have different needs that require additional care from firms, because those vulnerabilities mean they may not be able to represent their own interests or make quick, informed decisions in the way that other customers can do.”
She added: “The role of insurers is absolutely critical.”
Ms Arora said there had been some good progress from the insurance profession but that there should be consistently good outcomes for customers across the whole financial services sector and that the fair treatment of vulnerable customers must be embedded throughout business models, culture, policies and processes.
We don’t expect staff to proactively identify each and every vulnerability of each and every customer, but they should have the skills and capability to recognise clear signs of vulnerability and respond appropriately in those circumstances
Vulnerable to what?
The guidance is as much of a mirror to the work being done by the insurance profession as it is a roadmap to where they go next, according to Chris Fitch, vulnerability lead of Money Advice Trust.
He said: “The question, ‘what is vulnerability?’, comes secondary to, ‘vulnerable to what?’. At individual customer level, if you can establish that relevant insight you can provide relevant support.
“At aggregate level, if we can think about what people are vulnerable to, we start to see that different groups of vulnerable customers actually experience common harms – and that can make the process a lot simpler in terms of the actions we take. It is very easy to become overwhelmed by an A to Z of vulnerability and think, ‘where do we start?’.”
Mr Fitch also pointed towards the section in the FCA guidance on knowing your customer, which he highlighted as hugely important.
“We hear a lot about disclosure but, for me, the one thing we could do better is to have customers disclose support needs at the point of onboarding, not at the point of application,” he said.
“Firms need to create an environment where they reassure customers that if they disclose their support needs, the insurer will take steps to address them, which is an anticipatory duty under the Equality Act. The relationship with insurers can sometimes be a quiet one without much contact, so it is also about building in these regular check-in points.”
Hayley Robinson, UK chief underwriting officer of Zurich, said the Covid-19 pandemic has shown us in stark relief just how many people are vulnerable at this time in the UK. She highlighted a range of circumstances customers are dealing with, including isolation, loss of employment, financial strain or bereavement.
“On the life protection side, we have been offering the option for customers to reduce the sums insured, therefore reducing premiums without the need to catch up and later, to increase the sum insured again without medical re-underwriting. “We have given customers the option to delay renewals and offered premium rebates as well as counselling services for those most affected,” said Ms Robinson. “It is so important we provide flexibility to customers.”
Almost 80% of 200 global organisations surveyed believe focus on reputational risk in their business will only increase in the next five years
Source: WTW 2020
Christina Dolding, head of member strategy, complaints, vulnerable customers and heritage customer experience at LV=, went on to discuss some of the unique challenges of the past year and how it has presented an opportunity for insurers to be more understanding and to evolve processes, particularly concerning bereavement.
“Bereavement is always a part of our world but it has been massively increased at a time when colleagues are also experiencing tragic circumstances. It has been a challenge to build resilience and support for our teams while dealing with some very traumatic cases,” she said.
Ms Dolding continued: “One major issue is around financial volatility and customers that are not being advised. “They may have been saving for years and have a product that was put in place for a specific purpose, but when there is financial instability in the market they can often panic and do something they are not advised to do in later life.
“It is about knowing where we as a frontline team can give advice and where an adviser should step in, because at that point of disinvestment there is huge risk of harm, so that is a key area we are keen to explore and create better customer outcomes.”
Ms Arora added: “We don’t expect staff to proactively identify each and every vulnerability of each and every customer, but they should have the skills and capability to recognise clear signs of vulnerability and respond appropriately in those circumstances. To help them with that, they need to have right systems and processes in place so that people are encouraged to disclose their needs.
“This is a brilliant opportunity for the industry to move forward,” she said. “The guidance is full of practical advice as well as good- and poor-practice examples, some of which came from us but many of which came from insurers. My call to the profession is to work together, learn, share best practice and experience, and turn the guide into practical action – and always, always with your customers in mind.”
To read the full guidance, visit: www.fca.org.uk/publication/finalised-guidance/fg21-1.pdf
Luke Holloway is editor of The Journal