Full disclosure

Treating Customers Fairly is a part of the Financial Services Authority regime that has caused much debate. However, Alison Hewitt says its review on claims handling is set to clarify the situation. Stephanie Denton reports

Claims handling is the moment of truth for the insurance industry, according to Alison Hewitt, head of department at the retail firms division of the Financial Services Authority.

When announcing that the FSA will begin reviewing general insurers' claims handling in retail lines next month, she said to delegates at the Post Magazine Claims Club: "Claims handling is your opportunity to fulfil the promise made to policyholders when the insurance was purchased: the promise to pay a valid claim."

She added that it was also one of the main areas giving rise to complaints from consumers of insurance products - and that the FSA has found, from discussions with the Financial Ombudsman Service, that the same claims handling issues arise time and again in respect of retail consumers.

These include the fact that customers frequently have to request a claim form several times before receiving one, and that they are often unaware of the claims handling process and who is dealing with their claim. Ms Hewitt says that there are complaints of unnecessary delays in claims handling and of claims not being handled fairly. Another key issue is that customers often do not understand why their claim is rejected, or why they are being offered an amount that is less than the amount initially claimed.

She admits that to date, the FSA's supervision of the retail general insurance industry has not been focused on claims handling; other areas have been given higher priority. However, she claims this is about to change.

First stage

To begin with, the FSA will be conducting a study starting in November (PM, 6 October, p1) in order to gain a greater understanding of, and insight into, claims handling in retail general insurance firms, and to inform future supervision. Ms Hewitt confirms that this initial work will not include insurance intermediaries, although they may be featured in later studies.

The first step of the survey will be to send out a questionnaire to a cross-section of small, medium and large insurers, which aims to gain an insight into firms' internal service standards. This includes standards set for outsourced service providers together with firms' general compliance with chapter seven of the Insurance Conduct of Business rules.

The questionnaire will then be followed up by focused visits to a small group of insurers to look in more detail at the systems and controls the firms have in place to ensure compliance.

Ms Hewitt says: "The qualitative information gained from the follow-up interviews will help us understand the reasons for divergence of standards in the industry, and differences between distribution methods and product types. We'll also be looking for evidence that firms are using management information to analyse and improve their claims handling service, and that senior management have access to and are acting upon this information."

Internal review

In light of the forthcoming review, the results of which are due to be published in the first quarter of 2006, Ms Hewitt urges insurers to ask themselves some important questions.

She confirms the survey will focus on the use of outsourcers and suppliers because in the FSA's experience there appears to be a distinct lack of control in this area. She says: "It is important to remember that the insurer retains responsibility for claims handling even if it outsources its claims-related activities to another party." Therefore, she believes insurers need to set quality and performance standards, and demonstrate they are monitoring their performance through regular audits.

Outlining other areas the research will touch upon, she raises the importance of looking at claims handling from a customer perspective. "You should be looking to align your claims handling process to the requirements of your customers, to make it easier for them to claim and to develop consistency," she explains.

Information is also a key area of concern for the FSA, as illustrated by its key facts initiative, and the review will assess insurers' use of information. Ms Hewitt explains the questionnaire will ask: "Do you provide adequate and clear information to customers when they make a claim to manage their expectations - for example, explain the claims process, who will be dealing with the claim, the timescales involved in processing the claim, or the reason why their claim has been rejected or not met in full?"

And finally, she highlights fraud as an area that should be receiving attention. She says insurers need to ask if their anti-fraud strategies are balanced with customer-focused internal claims handling standards and key performance indicators. And, if so, are these being regularly reviewed and what action is taken if the standards are not met?

The fact that the FSA is undertaking this review confirms the importance of claims handling for the insurance industry and, as Ms Hewitt concludes, insurers need to take it very seriously: "Apart from price and coverage, your handling of claims may be the only opportunity you have to differentiate yourself from your competitors. Arguably, if you get claims handling wrong, the cheapness of the policy or the breadth of cover will count for nothing in the eyes of the general public."

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