FCA "will focus on consumer expectations"

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The incoming FCA will focus on consumer expectation, even if it is "utterly unreasonable", according to a legal and regulatory compliance consultancy.

Speaking at today's Marketforce Future of Protection event, owner of Paginator Malcolm Paggett, said the new regulator will not be interested in compliance and regulation as a "fair deal" for consumers, but rather a focus on outcomes.

He said: "What is a "fair deal" in insurance? In a changing world we have to ask what are we selling? We are selling a highly complicated legal document and contract. It is now about what consumers expect not what the industry expects or what we think is reasonable.

"The regulator no longer expects the consumer to read or understand an insurance contract. It will not even accept that someone who has signed to say they understand has understood. That is the regulator view now. We are moving into an entirely different world.

"It does not matter to the regulator what the product terms are. It only matters that the person who bought it has a fair and reasonable outcome from the purchase. This causes quite a problem for the insurance industry."

He added the FCA will be entirely focussed on expectations even if consumer expectation is "utterly unreasonable".

"Consumers are unreasonable. The only measure the regulator and government care about is that the consumer gets what they want because consumers vote and the industry does not," Paggett explained.

"It is a mistake to think that the regulator does not understand or is insane. It is responding to government powers. We need to ask whether our products do what they say on the tin."

A delegate asked how the incoming regulation shake-up would impact insurance law.

Paggett explained it was now about the rhythm and outcome of law rather than the law itself and a principles-based world rather than a black and white legal one.

Panellist at the session Phil Jeynes, head of account development at PruProtect, said: "What we can do now with the regulator is make a compelling case about this part of the industry being excluded from the commission ban this time around. It is not fair to the consumer and makes no logical sense to remove it."

Second panellist Helen White, assistant director of consumer policy and protection at the ABI, said the industry needed to stop talking about how the regulator did not understand the industry.

"It is working to objectives set by government. It knows it has to learn from problems of the past and we should be working towards the same objective," she said.

Jennifer Stott, third panellist and head of regulatory change at Lloyds Banking Group, said the industry needed to be careful not to perceive that RDR was about commission and would put it in a better place to communicate with the regulator about commission on products.

Audience member Richard Verdin, protection director at Aviva, said: "The thought of keeping commission as a way to keep protection alive and fill the needs of the consumer is insane. We should all welcome the new regulator's point of view and only over time will we engender trust among the consumers."

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