Do we really need TCF (without any benchmasrks)?

While the official tabling of TCF as a piece of legislation is dependent on the establishment of the Twin Peaks legislation, the Financial Services Board (FSB) requires all companies to be TCF compliant as of now, with the final implementation date set as January 2014. This means that companies need to implement the six strategic outcomes as a matter of urgency.

These outcomes have been well publicised by the FSB:

- Customers can be confident that they are dealing with firms where TCF is central to the corporate culture.

- Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly.

- Customers are provided with clear information and kept appropriately informed before, during and after point of sale.

- Where advice is given, it is suitable and takes account of customer circumstances.

- Products perform as firms have led customers to expect, and service is of an acceptable standard, and as they have been led to expect.

- Customers do not face unreasonable post-sale barriers imposed by firms to change products, switch providers, submit a claim or make a complaint.

The question is: how does the man in the street find information to assess an individual firm before conducting business with it? This is where I start to have a problem.

Although I am part of the financial services industry myself, I am also a customer having insurance policies across the board being: long-term, short-term, investment and pension. As a customer, I also wish to be treated fairly, however fairness, like beauty, is in the eye of the beholder, and my standards may be more or less exacting than the next person. As a result, a customer can only rely on the various regulators to provide a benchmark.

Do the various regulators have a benchmark? I do not think they do. The FSB’s website can tell you if a particular Financial Services Provider (FSP) has a current license and whether the person you are dealing with, is an accredited representative. It could also publish a FSP’s TCF record for naming and shaming purposes, but without a benchmark this would be meaningless to a customer.

 

Under the TCF section, the FSBs website refers you to the various ombudsmen with links to their websites. Both the long-term and the short-term ombudsmen’s websites have statistical information giving complaint statistics and overturn rates for short-term insurance and resolved in favour of complainant rates for long-term insurance.

They give this as an average percentage for the year, and then each individual insurer’s particular rate, so that you can assess against the average. However, this is not really a benchmark, as what is an acceptable level?

It is also worth noting that the majority of the long-term cases were resolved in agreement with the insurers rather than by determinations. If these statistics were to be used as a form of benchmark, I suspect that the insurers would not settle so readily.

When it comes to assessing a service provider with regards to FAIS, I could not readily find any similar statistical information regarding individual FSP’s at all.

The next desired outcome is product design and customer targeting. As a customer, I have simply no idea as to how I am going to judge whether a product supplier has designed and marketed a product in this way. All I can determine is if there is something in the marketing that attracts me to it. I am therefore assuming that reliance is put on product houses to self-regulate in this respect and have documented processes in place in this regard. The question then becomes, who is entitled to inspect these documents? And who is going to determine whether the process has the desired outcome?

Outcome number three states that customers are provided with clear information and kept appropriately informed. This is also an area of concern. There is no doubt that financial products have become increasingly more sophisticated, and as a result more complicated. If I look at one of my own policies, the policy document is 80 pages long and I wonder if the average customer will analyse such a verbose document.

 

The appropriateness of advice, being outcome number four, is itself regulated by the Financial Advisory and Intermediary Services Act. This regulation has been in operation for some time now, and is the one section of TCF that has a history long enough to gauge its effectiveness.

 

Product performance and service levels, being outcome number five, is where most complaints currently lie. The question becomes: is TCF going to make any difference to these at all? Financial products have always been that of an intangible promise or service and are bought on the aspects promoted by the seller that satisfy the desires of the customer.

 

It is relatively easy to judge whether a product has met the advertised targets for the particular investment; or payment for a particular loss, or occurrence. The problems normally arise with the application or interpretations of the policy wording relating back to outcome number three.

In conclusion, it may be said that I am not raising anything new, but using the FSB’s own analogy from road behaviour as stated in their TCF Roadmap:

In May 2013, the International Transport Forum's (ITF) latest Road Safety Annual Report ranked South Africa worst out of 36 in a global road safety report, so is this methodology having any effect on motorists’ behaviour at all?

Maybe the FSB should reconsider the effectiveness of trying to regulate a culture of behaviour with this methodology. I am not sure that I can offer a solution to this, but what has been proven in the past, is that there is no substitute for education and that consumerism has expanded with a better educated and increased awareness within the consumer base.