Ensuring TCF in complex, triumvirate advice relationships
Sometimes the regulation that you push back against offers common-sense solutions to your operational challenges. Case in point; those who ‘bake’ the six treating customers fairly (TCF) outcomes into their business have little difficulty in navigating the complexities of today’s multi-stakeholder financial services relationships. “There is a collective responsibility on the intermediary and his or her insurer and underwriting management agency (UMA) partners to treat the customer fairly,” said Peter Olyott, CEO at Indwe Broker Holdings, during his presentation to the South African Underwriting Managers’ Association (SAUMA) 2023 Virtual Conference.
Clients have responsibilities too
The presentation, titled ‘Balancing customer service and our responsibility’ explored the complex, triumvirate relationship between broker, client and underwriter in the context of the regulator’s six TCF outcomes. The first outcome is that the fair treatment of customers becomes central to the culture of financial services providers (FSPs). “Fair means impartial and just; without favouritism or discrimination; or without cheating or trying to achieve unjust advantage,” Olyott explained, before musing over the caveat of the fair treatment of FSPs by clients… Clients must manage their risks and, at all times, make honest and open disclosures “of all material facts” to both intermediary and underwriter.
The second non-negotiable TCF outcome is that the products and services that intermediaries ‘sell’ to their clients are fit for purpose. “The products and services marketed and sold [must be] designed to meet the requirements of identified customer groups and perform accordingly,” Olyott said. In this regard, industry stakeholders must understand that needs may vary significantly from one client to the next. Clear and concise communication is important too, featuring as the third TCF outcome. “We have to communicate clearly with our clients and keep them informed before, during and after the time of contracting,” he said, before commenting that brokers, in partnership with specialist UMAs, had a clear edge in the communication function.
A broker plus UMA ‘partnership’ ensurers clearer communication between all parties with regards to what is covered, what is not covered, why certain risks are not on cover, and what clients need to do to achieve better overall risk management and risk transfer outcomes. As such, clear communication becomes the cornerstone of good financial and risk advice. So, it comes as no surprise that suitable advice is the sub-head of the fourth TCF outcome, which holds that the advice that clients receive must be suitable and take account of their circumstances. In this context, suitable means ‘right or appropriate for a particular person, purpose or situation’ while circumstances relate to the client’s financial and material needs.
Suitable advice non-negotiable for TCF outcomes
“Your advice needs to be suitable taking into account who you are dealing with and their specific circumstances [whether the client is a] business, large or small, or personal lines client”, Olyott said. Using cyber cover to illustrate the concept, he noted that it was easy to get large business to take this cover whereas it was proving to be a ‘hard sell’ to small and medium enterprises, despite the product being invaluable to both. Intermediaries and their UMA partners should consider whether cyber cover is being explained properly and whether clients understand the ramifications of this risk.
TCF outcome five is headed ‘performance and standards’ and requires that “the performance of products and service levels are according to clients’ expectations”. It frequently happens that clients buy insurance believing that claims will be settled “as quickly as the broker or insurer takes their premium out of their bank account”. Unfortunately, complex claims take time to resolve, introducing the risk that clients feel they are being unfairly treated. This is a perfect example of how glossing over one of the TCF requirements, clear communication, leads to shortcomings under another. “One of the reason for issues under this requirement is that the performance expectation of the policy was not clearly conveyed to the client at the time it was taken out,” Olyott said.
Finally, TCF outcome six, which holds that clients must not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint. According to Olyott, when viewed in the context of the aforementioned triumvirate relationship, the claims focus of this outcome presents challenges to brokers. “We do the sale and sell a nice-looking policy that covers everything under the sun; but we seldom enter into the discussion with the UMA or the insurers that they lead as to how everything plays out at claims stage,” he said. “This is an important [discussion] seeing as the payment of a claim is the reason why our clients buy insurance”.
Impossible to define ‘best’ product
Another product-related question that brokers often struggle with is what constitutes the ‘best’ product. There are too many metrics to consider. For example, is the policy you recommend to your client the ‘best’ measured by the insurer’s claims pay-out ratio; or the insurer’s performance at the Ombudsman for Short-term Insurance; or the simplicity of the policy wordings etc. “When we look at what is best for our clients we tend to try and find the best balance between many factors,” Olyott said. This focus is important, because there is an alarming tendency for the broker to end up carrying the can when something goes wrong at claims stage. PS, ‘carry the can’ is an informal English phrase meaning ‘to take responsibility for a mistake or misdeed’.
Here follows what was perhaps the crux of the presentation: TCF is a joint responsibility of all parties to the insurance transaction, from broker, to UMA, to insurer. “Brokers cannot be expected to stand in for losses which insurers will not cover,” Olyott said, stressing the difference between will not and did not cover. “Brokers must communicate in a clear and concise manner about which risks are insured; which risks can be insured, but are not; and which risks cannot be insured, being essentially uninsurable risks”. His advice to brokers was to limit their liability when dealing with risks that were excluded by insurers, or that clients elected not to insure.
The broker cannot be the default insurer
More importantly, potential legal liability should be limited to the maximum extent of the broker’s remuneration, or a multiple thereof, and, in total, not exceed the limit of insurance cover premiums the client has bought. “This introduces a measure of fairness,” concluded Olyott. “Because otherwise the broker gets held to any loss that did not get covered because it was excluded from the insurance, or the insurer did not cover it”. To restate: the broker does not intend becoming the default insurer in circumstances where the policy, for whatever reason, fails to perform.
Writer’s thoughts:
In his presentation to the SAUMA 2023 Virtual Conference, Peter Olyott commented that the broker and UMA have a joint responsibility for meeting treating customers fairly (TCF) outcomes. Agree or disagree? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.
