What are the pros and cons of the Financial Services Authority's treating customers fairly (TCF) initiative and what has it contributed to the protection and health insurance markets?
Market views
Jason Hurley, RGA Re
It is hard to imagine a product that is more straightforward than life assurance.
The policyholder knows the premium, that premium is guaranteed and the policyholder is aware of what level of benefit will be paid following a clear-cut event such as death.
The problem arises because many advisers sell critical illness (CI) insurance in a similar way to life assurance, and it is in this area where the industry can look to treat customers more fairly.
For example, by giving clearer warnings about the consequences of non-disclosure - so that the consumer is aware that if they lie, their claim will not be paid.
There also needs to be clearer questioning on application forms, clearer definitions of what is and what is not covered under the policy, and clearer processes to review premiums Another way in which we can treat customers fairly is by removing certain elements of cover that confuse and lead to high levels of claim declinature, in particular, occupation-based total permanent disability (TPD).
Similarly, no longer selling standalone CI insurance would help the situation since it causes problems if the policyholder dies of a CI and the claim is declined I appreciate that many companies and the Association of British Insurers are already starting to address these issues.
And irrespective of the treating customers fairly (TCF) initiative, this is something that RGA fully supports.
Steve White, British Insurance Brokers' Association There has been a lot of misunderstanding in the intermediary community regarding the issue of TCF and it needs clarifying.
The FSA has 11 principles for businesses and these underpin all its rules.
Principle six, customers' interests, requires a company to pay due regard to the interests of its customers and to treat them fairly.
Bear in mind that these principles apply to all the firms across the whole range of financial services, from the banks and building societies, to mortgage lenders and brokers, through to IFAs and the newly regulated insurance intermediary sector.
The FSA has produced a high level document giving firms some guidance on areas they can consider within their own management processes.
The FSA is not saying that it has evidence that insurance intermediaries have not been treating their customers fairly.
However by the same token, it is not saying that simply complying with all the rules means that a firm is automatically treating customers fairly.
Clearly, treating customers fairly is a matter of management style and attitude rather than simply ticking a box.
The FSA has recognised that the embodiment of a TCF culture within smaller firms may be a different process than for larger firms, and have identified two key obligations.
The first is that management should be fully involved in the consideration of what TCF means for their business and to establish an appropriate culture within their firm.
The second, is that all firms involved in providing products and services to consumers must uphold the principle of TCF throughout the end-to-end processes of designing services or products, marketing and promotions, giving advice, selling and providing post-sale assistance, including the handling of complaints.
Most intermediaries have been treating customers fairly as a way of life, but in this new regulatory environment, the FSA will expect evidence of formal procedures.
Stuart Gray, Portus Consulting Any professional operation will already be implementing the principles of TCF within its business.
However, the FSA has ensured that we fully analyse and embed all criteria into our business practices and culture.
We have found this very useful in terms of undertaking deeper analysis of what customers really require for a successful long-term relationship.
For smaller privately-owned businesses, the key is to build the value of the business over the long term.
As such, it is vital to identify the types of client that are wanted, and even more importantly, identify what needs to be done to maximise client retention.
The potential for success is maximised by considering all aspects of TCF.
In terms of larger organisations, it could be said that in essence, short-term sales and profit growth may take priority over the development of long-term profitable relationships.
While some companies' sales revenue targets are very much focused on a combination of client retention and new client acquisition, some larger organisations that focus far more on new business acquisition can sometimes be to the detriment of existing clients.
Paul Cowman, Prudential Any initiative that raises standards across the industry must be applauded.
It is important that customers are reassured that the product they bought will deliver exactly what they expect of it, particularly at a time of illness or distress.
The paper from the FSA brings together a range of existing regulatory obligations and legal requirements by which life offices are already bound.
Therefore, the proposals outlined will not necessarily have an impact on companies already adhering to these rules and regulations, but simply consolidate the rules in one place.
Our only concern, albeit a small one, is that this may lead to confusion should some practitioners attempt to adhere more closely to the statement of practice rather than to the rules themselves.
Concern over the number of declined claims for critical illness has made many companies look again at the terms of these polices, some of which were written as far back as 1986, to make sure that there is nothing in the terms to cause concern relating to TCF.
Moving forward, greater care will need to be taken by product providers when reviewing existing products and developing new ones.
Care will also be needed to make sure that any innovation works hand in hand with TCF.
