Treating Customers Fairly (TCF) appears to have been difficult for insurers to implement as it marks the introduction of principle-based regulation by the Financial Services Board (FSB). No formal law or rules have been passed and no start date has formally been declared, says Danny Joffe, Senior Legal Adviser at Hollard Broker Markets.
While there are six, by now relatively well-known, outcomes along with actions and standards to support the outcomes, regulated firms have been tasked with inculcating TCF principles within their companies in their own unique way.
Be clear with your advertising
There are two issues linked to TCF which regulated firms may not have fully considered, but which I believe the FSB is going to look at very closely going forward. These will be the advertising of insurance products, and the unilateral cancellation of policies by short-term insurers.
In terms of advertising, it is the TCF outcome that requires insurers to provide clear information to consumers both prior to purchase of a product, and during the lifetime of that product that is of interest. When insurers advertise, they are going to be held strongly accountable for the content of that advertising, specifically if a prospective policyholder is persuaded to purchase a product by that advertising.
The disclosure of all material facts and product attributes and the unambiguous presentation of these facts will challenge insurers and marketers alike. When one throws into the mix the requirement that products will have to perform in the way that the consumer has, subjectively, been led to expect in terms of TCF outcomes 3 and 5, and the fact that the FSB is already actively taking steps to make sure that insurers advertise responsibly, it is clear that there will be some interesting developments in this environment.
Get to the bottom of cancellations
When it comes to the unilateral cancellation of policies, whether we're talking about entire books of business, or single policyholders, attention needs to be paid to the reasons for such cancellations and the due consideration of all the facts influencing the cancellation. If a policyholder is unilaterally cancelled, this can be prejudicial to the policyholder given that any future cover will be subject to the disclosure of this cancellation to prospective new insurers.
There may be an innocuous reason for such a cancellation. An example of this is when an underwriting manager cancels its binder with a particular insurer and wishes to move to another carrier. In this instance, the underwriting manager cannot simply just move the book of policies; the current insurer remains the insurer unless the policyholders or the insurer cancel. From a commercial point of view, it is far less complicated for the existing insurer to cancel the entire book of policies, and for the policies to be re-broked to the new carrier.
The alternative is to obtain every policyholder's signature agreeing to the move to the new insurer. While there may be good intention in cancelling these policies for this reason, it will be interesting to see how this may conflict with TCF.
Putting the customer first
Of course, these are but two examples of how the common and everyday practices of all insurers may conflict with the new TCF regime. Insurers will need to swiftly become used to the idea that everything they do must first be analyzed through the lens of the customer. While this is undoubtedly a good thing, the law of unintended consequences is nonetheless in full operation.
While the FSB has not formally passed any legislation embedding TCF within the industry, companies are expected to follow the principles set out by the FSB. While there is some uncertainty about the effects that this will have on an insurer’s business, having a clear view of the landscape and what a customer expects from an insurance transaction provides ample opportunities for growth. In uncertainty, there can be prosperity.