While the deadline for the insurance industry to demonstrate it is 'treating customers fairly' fast approaches, a recent survey shows there is still much work to be done in making firms aware of their responsibilities, says Claire Crossley
By December 2008, the UK insurance industry has to demonstrate to the satisfaction of the Financial Services Authority that it is treating customers fairly. The results of a recent survey suggest that while intermediaries have made much progress, there are some areas which still need work.
Generally speaking, intermediaries seemed to have fared better than insurers in the Moore Stephens survey. No fewer than 93% of intermediaries reported that they had designated TCF responsibility to senior management, which is significant when viewed in light of the FSA requirement that accountability for TCF be clear and "at an appropriate senior management level".
If TCF becomes a regular board agenda item, it may be easier for firms to track progress against the outcomes for consumers, and to make decisions regarding TCF performance. In this regard, the survey revealed that 97% of intermediaries discuss TCF at board level, and that 24% review TCF information at the same level on a monthly basis, as against the 29% who review it on an ad hoc basis. With the December deadline approaching, firms should be increasing their frequency of TCF reviews.
Firms need to show that they have incorporated TCF into their business strategy, to demonstrate how it plays a role in the decision-making process. In essence, they have to demonstrate how they know they are treating their customers fairly. In the survey, 86% of intermediaries claimed to have incorporated TCF into their business strategy - and this puts them significantly ahead of those insurers who responded to the survey.
The FSA has stipulated that it is important to have active endorsement and support at the most senior levels in order to provide momentum and to drive through necessary actions. Over half (54%) of intermediaries responding to the survey said that senior management had taken an active role in implementing their TCF programme. During the course of its assessment programme, the FSA found that where senior management played a directive role in embedding fair treatment into a firm's operations, it helped to develop a more realistic and effective measurement of what was required. Importantly, the FSA intends to hold senior-level discussions with firms in order to establish their use and understanding of management information in the context of TCF.
Firms must be able to measure their performance against the FSA's outcomes for consumers, and 83% of intermediaries who responded to the survey said that they had management information and key performance indicators in place. Intermediaries highlighted complaints, FSA updates and staff training as management information most frequently reviewed at board level.
With regard to the nature and extent of documentation produced to achieve and support the FSA's TCF process, 65% of intermediaries responding to the survey said they had documented more than half of their TCF work. The type of documentation retained by the largest number of intermediaries was that relating to complaint letters and responses, sales procedures, staff manuals and handbooks, and file reviews.
The survey revealed that intermediaries had primarily focused their attention on sales processes, claims support, training, post-sales customer service and marketing, as areas of their business to be reviewed as part of their TCF programmes. Roughly 10% of intermediaries admitted they had not reviewed specific areas of their business.
Staff are an integral part of the successful implementation of TCF, and 54% of intermediaries claimed that each member of their staff was aware of TCF and what the FSA is trying to achieve. Roughly 35% reported that over 75% of staff were similarly aware, with fewer than 10% admitting that under 50% were aware.
Overall, 23% of intermediaries reported that all their employees, including appointed representative firms, had been trained in TCF, while 39% said that TCF was written into staff objectives and/or job descriptions. Meanwhile, 53% of intermediaries considered TCF to be a determining factor when reviewing staff performance and agreeing bonus rewards. This is significant because the FSA has recognised rewarding TCF as an example of "good behaviour" within firms.
The assertion by 85% of intermediaries that fewer than 10% of their complaints were TCF-related came as something of a surprise, not least because the Financial Ombudsman Service recently reported that the number of insurance disputes had doubled.
The survey highlights the progress that has been made with regard to TCF in a relatively short space of time, but it also shows that only 53% of intermediaries were "extremely confident" that by year-end 2008, they would be able to meet the FSA requirement to "demonstrate to themselves and to the FSA that they are consistently treating their customers fairly".
The most challenging part of the TCF programme for 50% of intermediaries was understanding the outcomes that needed to be achieved. This is surprising because the FSA some time ago clearly defined its six customer outcomes for consumers.
Feedback received after the survey revealed that a number of brokers are only now becoming aware of the imminence of the approaching deadline, and that some are still battling with their boards in an effort to make TCF a fixed agenda item. Many appear to lack the resources to complete the task. Demonstrating a TCF culture appears to be the outcome most firms are struggling to achieve.
- Claire Crossley is a consultant with the insurance industry group at international accountant and insurance adviser Moore Stephens.
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