While there has been cross-sector agreement regarding the importance of the Financial Service Authority's treating customers fairly guidelines, difficulty has arisen when trying to cement its definition, as experts debate what TCF means to individual organisations - and more importantly to consumers. Stephanie Denton reports
Treating customers fairly has always been a central part of the Financial Services Authority's regulation of the insurance industry, and last year the FSA encouraged insurance firms that had failed to engage in TCF to do so by setting a March 2007 deadline for them to be implementing it. According to the IFS School of Finance, only 45% of small general insurance firms met the deadline.
The FSA has, therefore, imposed new deadlines and by the end of December 2008 all firms are expected to be able to demonstrate to themselves and to the FSA that they are consistently treating their customers fairly. Additionally, by the end of March 2008 firms are expected to have appropriate management information or measures in place to test whether they are treating their customers fairly.
One of the long standing problems with TCF is that no clear definition of the requirements has been given as the FSA has introduced this as a principles-based regulation. It says: "Because of the wide range of activities and business models firms carry out, it is not possible to outline TCF in a way that applies to everyone. We are moving towards a principles-based approach to allow firms greater flexibility in deciding how best to meet our requirements."
So what is TCF and how can every firm be expected to measure if they are meeting requirements? A group of experts were recently brought together to discuss this challenge for the insurance industry at a Post round table event sponsored by Cunningham Lindsey.
Mark Chapman, partner at the Davies Group and representative for the Chartered Institute of Loss Adjusters, began the discussion by comparing TCF to describing an elephant: "It is hard to describe it but you know it when you see it. What we are trying to achieve is something that is relatively simple, straightforward, and what everybody wants. There isn't a business out there that I work with that doesn't want to treat their customer fairly. It is trying to find a mechanism to drive that through."
According to Kevin Howard, technical claims manager for Allianz Insurance, TCF is very much about delivering the product that has been promised. He explained: "Day-in, day-out we must be treating our customers with clarity and empathy, and delivering what they paid for. It doesn't mean giving the customer what they expect or what they want but what it does mean is giving them what they paid for and making sure that there is clarity."
"You can turn a customer down, pay them nothing and still be treating them fairly. It is about getting what you paid for. Customers should know what they are buying so then there can't be any shortfall when it is delivered."
Simon Hurst, business service manager at Marsh, supported this: "It is not about doing things differently, or creating satisfied clients but treating clients with integrity and in the way they deserve. If you embed that throughout the business you should be alright, but it starts with placement goes through to claims and involves everything in between."
Harry Roberts, director of risk and compliance at Cunningham Lindsey, explained that communication was a key part of this: "How we communicate settlements is key to people believing that they are being treated fairly. Different parties might end up with different settlements and I don't think that is necessarily wrong. What is important is that they believe they have been treated fairly and they have all the opportunities to question what is happening."
However, Nigel Parker, director at Harris Claims Group and spokesman for the Institute of Public Loss Assessors, argued that the customer does not always know what to question. He said: "The clients only know what the insurer or the loss adjuster tells them so how do they really know if they have been treated fairly? It is not giving a policyholder more than they are entitled to, it's giving them what is best for them."
He added: "For 99% of the industry, I believe the mindset is to be fair but in practice it doesn't always turn out that way."
Mr Roberts then raised the issue that suppliers are often working for different firms and that TCF may be defined differently for each insurer. He said: "It is not up to me to decide what is fair; it is up to my clients to tell me what is fair and for us to take on board what they assess as being fair. That is one of the challenges for us - we work with a number of different clients that may have different measurements of fairness."
He added the circumstances surrounding claims can also have an affect on claims and fairness for customers. "With the recent floods there were a huge volume of claims and no one was geared up for the amount. Therefore, you had a shortage of supply and under those circumstances there are minimum requirements for standards," he explained. "Some things become a physical impossibility so how do we treat customers fairly under these circumstances. We introduced triage where we looked after the infirm and the elderly first. You form a queue and some people will be at the top and some people at the bottom. In my view this is entirely treating people fairly. You have to say whose need is the greatest and work your way through. However, some people will not have had a response as quickly as they would like."
This revealed the many challenges facing insurers in defining TCF for their customers and according to Mr Howard the definition is just the start of the process: "Our journey started with defining what TCF means. We then looked at our major processes and products, conducted a gap analysis, produced detailed action plans to make sure things happened, re-enforced by introducing a board-level sponsor steering group, which meets to discuss points and will continue to meet throughout 2008."
Mr Hurst agreed that there was more than just defining TCF and added that half the battle was about changing cultures within the business: "The whole culture now is around treating customers fairly. The staff have to buy into it in a way through training and understanding."
TCF from within
Mr Howard said his firm had done its best to embed TCF into the company culture. "What we didn't want to do was turn it into another initiative so our staff just thought here we go again. 'TCF this week, what are we doing next week?' So we took a step back and we spent quite a bit of time defining what we felt fairness meant for us as a company; and that used words such as empathy, understanding and clarity. Then we re-enforced them with our staff through a customer commitment charter so that our staff could see in a tangible form what it means. We wanted to move towards this becoming truly business as usual."
Mr Chapman added that although training is important it is also key to ensure staff are motivated to change cultures. "We can change behaviour by doing stuff like training and workshops but one of the other ways to change behaviour is to reflect work in rewards and remuneration," he explained. "People tend to respond when they see a direct benefit or disadvantage to their behaviour."
"We reviewed some of our central controls to make sure it was rewarding the right behaviours and that we are looking for the right things to be on the call list, file reviews and audits," agreed Mr Howard. "You need to target people appropriately and target the behaviours you want to happen so it is important to make sure you are focusing your remuneration packages in the right areas."
This could be a challenge for some companies but Mr Hurst explained that Marsh has been quite lucky in this area as it already had this sort of reward structure in place. "We have, and have had for some years, a performance management scorecard so every year an individual is presented with a scorecard compared to various targets and aspirations on there. Achievement or otherwise is reflected in remuneration and we have been able to target TCF related issues. This is for every individual from the board down to the grass roots."
So firms are slowly managing to define TCF and put processes in place to achieve this but how can they and how will the FSA measure their success? "If you get it all right you will start to see an impact on your outcomes," explained Mr Howard. "You will see a difference in your complaints ratio and you need to assess this - are they going up or down, what are you doing to look at the types of complaints you are getting?"
However, Mr Parker questioned the value in this: "TCF is achieving the best possible outcome for the needs of the individual or business, which is why it is very difficult to measure complaints. People can only complain if they know what to complain about."
Steve Foulsham, technical services officer at the British Insurance Brokers' Association, added: "Adding value to the claims process underpins the TCF culture. In terms of measurement customer satisfaction is important. Questionnaires need to be used asking, 'How was the service for you?'"
Mr Roberts supported this and added that the industry is making headway in this area: "Now the customer is asked what the experience was like for them and it is one of the things we are measured on. The other thing, which is very significant and different from 10 years ago, is that nowadays rather than loss adjusters writing reports the insurer reads and then never looks at again, today a significant proportion come and audit our files and look at everything we do."
Mr Hurst explained for this reason everything is much more likely to be documented in today's insurance industry. "Every action taken on the file is documented, every e-mail, phone call, every piece of advice. In times gone by it might just have said spoke to client on this date but now it is much more detailed and states points agreed and confirmed. Those conversations always did take place but as our former chief executive officer used to say: 'If it is not written down it didn't happen'."
And Mr Roberts added that it is not just measurement of complaints that is important but also how the firm reacts to complaints: "Mistakes do happen in a complicated environment like claims settlement deliverance, but it's the way you behave when you've made a mistake that will really show whether the culture in your business is right."
"To make a mistake is not evidence of failure to treat customers fairly," he continued. "Evidence of failure is when a mistake occurs and you don't put it right."
Mr Howard echoed this adding: "Mistakes will be made and there will always be a layabout builder who doesn't deliver in the way you would expect. How that is resolved is key and how those business partners and networks are put in place is key. It is about the selection, and the monitoring and control mechanisms that are in place. You need to be looking at the broader controls in place and then when those problems do rise they are resolved speedily."
He also added that it is important to look at rejection rates: "What makes you reject claims, how quickly are you doing this, were you doing this before? If we are rejecting claims doesn't that suggest that our customers don't understand what they have been sold in the first place?"
The discussion then turned to customer perception which everyone agreed was key in TCF. Mr Parker started by asking: "What is the industry doing to ensure customers' expectations are either being meet or are modified? In the claims scenario the customer sometimes expects more than they are entitled to. And you can't always blame the customer for that. Sometimes it is down to us to moderate those expectations by explaining what they are entitled to. This is a major issue to deal with."
He added: "An Airmic survey said that less than 50% of risk managers are happy with insurers' performance in terms of claims. If there is general dissatisfaction at that level then what sort of services are small and medium-sized and private clients getting? The average private client maybe does have pretty high expectations and maybe the wrong expectations so one question is why isn't customer service benchmarked?"
"The difficulty with customer expectations is that they vary so much and unfortunately a lot of our expectations around claims time is on service levels," explained Mr Foulsham. "It will always come back to that. That is where the insurance industry has had a great opportunity this year with the floods because everyone has done a fantastic job on those. We have had people working 24 hours a day, bringing adjusters in from Holland and Canada, Norwich Union setting up help caravans. Sometimes that is the sort of thing that the industry should shout about because that is how we can demonstrate that the industry does treat customers justly."
However, Mr Parker argued that there are no statistics to back up good claims performance: "There are so many variations to response times - some insurers performed incredibly but there are those which didn't. How can clients differentiate and how do they decide where to place the cover next year apart from looking at the premium level, or advertising? Response times, willingness to pay, speed of claim - all these things can be measured. Yet there is no hard and fast evidence about which firms performed well and which didn't."
Mr Hurst then raised the point that placing of insurance had moved on a long way in the last decade and that the customers' perception had changed a lot. "All claims follow a placement of policy. The amount of work that people go through now in terms of transparency and disclosure documentation is tremendous. They have to provide massive amounts of information as to what the cover is, what the warranties are, far more than there ever was before. It is done much more professionally than it ever was."
"From the claims standpoint that has made our lives easier," he added. "I've seen significant improvement in claims and in expectation of a claim and coverage is placed better. Even where we have taken on runoff work you can see that has been placed better. Clients now have a better understanding of the cover they have got."
Mr Roberts echoed this: "We are in a much better place with claims than we have ever been. Clients have the benefit of understanding the cover they have so their expectations are managed better almost before the claim happens. They understand what they have bought and, therefore, the claims process goes quite well."
Whether clients do have a better understanding or not, Mr Roberts commented that the insurance industry has to be prepared to keep trying and keep learning from customers to achieve TCF. "What really matters is how it feels to the customer. And if you haven't treated the customer fairly, not only have you got to put it right for them you have also got to go back and look at your procedures and maybe start again," he explained.
"We have encouraged our people to question the process. It could be a recipe for anarchy but you have got to take that risk. Encourage staff to say if that isn't working. Don't feel you are a slave to the process, come back tell us what is not working and you never know the whole thing might get better."
From the bottom up
"Top down walk throughs are important but bottom up feedback is also essential in this," agreed Mr Howard. "We have workshops and a TCF log where staff can report things they think we should be looking at in more detail."
In terms of market reaction to TCF everyone agreed that the industry has moved forward in a positive way. Mr Roberts explained: "One massive change since I started is that we now often receive a list of policyholders insurers have located in an area that has been affected by a flood, and insurers say we haven't heard from them can you go and see if they are OK. CILA has been measuring contact and for the floods in the north within a fortnight well over 95% of people had been contacted. If the majority of people are visited on a proactive basis, to me that is indicative of a culture designed to treat customers fairly."
Mr Hurst agreed and added: "No one has ever given me a good reason not to do TCF because everybody believes it is a good idea. We have been criticised for not meeting expectation, and we are much better than we were, although we are not there yet."
However, Mr Howard believed that some companies may struggle to meet the FSA's requirements: "The FSA has set a March 2008 deadline for people to get measures in place and to be integrated in their management information and reporting - and that is an area that many insurers are going to struggle with. If they haven't yet defined what TCF means and looked at the measures that need to sit behind it how are they going to be able to demonstrate it in an empirical form?"
However, he concluded that as this was such as sea change to the way insurers are used to doing things they would get there in the end: "As an industry we are used to rules and so to go from that into principles we shouldn't be surprised it is taking a little while as an industry to define fairness for your customers."
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