Are short-term insurers ready to treat customers fairly?
The Treating Customers Fairly (TCF) regime has taken a back seat in recent months as the insurance industry sinks its teeth into issues such as the new Binder Regulations, Demarcation Regulations, Solvency Assessment and Management and draft Insurance Law
On 12 June, the second day of The Insurance Conference 2012, Leanne Jackson (Head: Treating Customers Fairly at the FSB) shared some of the lessons learned from the survey responses of the 22 short-term licence holders and five underwriting managers that participated. (A detailed feedback report covering the industry-wide result was published in December last year, and is available from the FSB at http://www.fsb.co.za/). “TCF is about what you [the insurers] as regulated entities do for your customers and what results your operations deliver for them,” said Jackson. The regulation also serves as a valuable “link” between insurers and the financial consumer environment...
Embedding fair treatment in your corporate culture
The overarching goal of TCF regulation is encapsulated in the first of its six outcomes, which requires that customers be confident they are dealing with firms where TCF is central to the corporate culture. “The assessment revealed that to a large degree companies believe TCF is already implicit in the way they operate,” said Jackson. This belief exhibits at many large financial services providers where executive management have not yet started thinking through the strategic implications of a TCF implementation. It was suggested that boards extend their strategic planning beyond the customer services function, to include all the operational aspects of their firms. A common mistake, added Jackson, was for companies to view TCF as a “compliance only” function.
Companies cannot afford to “wait and see” how TCF pans out. At this late stage Jackson advocates a no-nonsense approach: “I do not know what [insurers] are waiting for – the six outcomes are not going to change. The FSB may issue specific rules and guidance in the months ahead, but the outcomes are set in stone.”
The danger in self-assessment
The second TCF outcome requires that the products and services are designed to meet the needs of identified customer groups and are targeted accordingly. “The short-term insurance industry believes that their products are inherently simple, offer a self-evident value proposition and that there is a low risk of a mismatch between the product sold to the consumer and the consumer’s needs,” noted Jackson. Yet both intermediated and direct insurers seem to develop product for their respective distribution models rather than determining the appropriate distribution model for that product. Could it be that insurers are too close to their business models to pick up these potential flaws?
Another concern raised by the FSB is how insurers answered the question: What constitutes value for money where product is concerned? “In most instances the real value test centred on price comparisons – it was about trying to come up with the lowest price for a reasonably similar product – with too little focus on the features of the product,” said Jackson. Competing on price alone is not going to deliver the right TCF result for consumers!
Tell it like it is!
The industry acknowledged that the third TCF outcome – that customers be provided with clear information and kept appropriately informed before, during and after point of sale – would be a challenge. “The short-term insurance industry underestimates both the complexity of its products and the difficulty that consumers have in understanding the concepts and language used to explain them,” noted Jackson. The average consumer struggles with the “excess” concept, for example, let along tricky topics such as subrogation. And you cannot address outcome three by simply printing policy documents in larger font or using “plain English”. Going forward insurers will have to test the understanding of the communication methodologies the use.
A classic example of poor communication is courtesy the call centre / direct sales model where consumers are asked to confirm that they understand the contents of the sales call. Their answer to this question is unreliable as it is human nature not to admit being confused, especially when this admission may result in extending an already lengthy and confusing conversation.
On intermediaries and TCF
The fourth TCF outcome is of particular importance to insurance brokers. It holds that where advice is given, it is suitable and takes account of customer circumstances. Jackson warned against confusing the requirements of the FAIS Act with TCF. It was insufficient, therefore, for traditional insurers to rely on FSB-licensed brokers as assurance that the advice requirement of TCF is met. A major shortcoming in the pilot self-assessment project was that there were few checks and balances in place to ensure that intermediaries had adequate product knowledge. Some providers believed that the brokers should take full responsibility for understanding the product while others preferred accrediting brokers only after comprehensive product training!
The advice component of TCF will have major implications for direct insurers. “Direct insurers assume that their products are ultra-simple and therefore do not require advice,” said Jackson. She asked whether it was fair to assume that consumers of direct insurance products really do not need advice. And assuming these products are sold without advice, how much extra care should direct insurers put into product design?
Products must perform as promised...
TCF outcome five holds that both product and service perform as customers have been led to expect. “This is not just about investment performance, but about any disappointment at claims stage based on an expectation reasonably created,” said Jackson. Insurers cannot rely on consumer complaints / satisfaction as a measure of product performance. You cannot assume fair treatment just because a complaint is not forthcoming.
The post-sales experience – which includes the claims performance for insurers – is summarised in the final TCF outcome. “The emphasis on claims and the correct handling of claims is greater in short-term insurance, but quality tends to be equated to how quickly insurers handle claims rather than the quality of the outcome, fairness of decision-making etc,” concluded Jackson. “Complaints and redress are dealt with reactively, without investigations into policyholders who did not complain but may have had a similar experience.”
Editor’s thoughts: Insurers that participated in the Financial Services Board TCF pilot – and read the ensuing report – will have a good understanding of what is required for a successful TCF implementation. Are you comfortable to include the six TCF outcomes in your strategy prior to the finalisation of the regulation? Add your comment below, or send it to [email protected]
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