Briefing: As the FCA looks to simplify its rules, what does this mean for Consumer Duty?

By news editor James Cowen

The announcement this week (July 2024) that the FCA is looking to streamline its rulebook is likely to be welcomed by the insurance industry.

Regulation has been a key talking point across the sector in recent years.

While this is no doubt crucial in helping to uphold industry standards, many within the market have called for the burden of regulatory compliance to be reduced, with long processes and unnecessary complexity described as the most common complaints by industry commentators.

For example, in Biba’s 2024 manifesto, published in January and entitled Managing risk for growth and economic security, the trade body cited research indicating that insurance broker regulation had become a “disproportionate burden”, with current methods of regulatory reporting bearing both a resource and cost impact.

In addition, before Labour took power in the UK earlier this month, incoming economic secretary Tulip Siddiq said the party was committed to “streamlining the regulatory burden for the insurance sector”.

She explained that the regulatory burden on the insurance sector “can obstruct competitiveness and growth”.

The FCA is currently doing a review of its rules, with firms having until 31 October 2024 to have their say.

A subsequent reduction in regulatory complexity is likely to lower admin costs for firms, encourage innovation and help support the risk appetite needed for growth.

In turn, this could boost international competitiveness and the economy over the long term.

Consumer Duty

So, what prompted the FCA to launch its new review? Consumer Duty is the answer.

This rule was introduced last year (31 July 2023) and sets out requirements for firms to follow to deliver good outcomes for their customers.

As part of its freshly announced review, the FCA is calling on the industry to identify rules which could be removed or simplified if they overlap with the duty.

“We now want to seize the opportunity of the duty and the move to a clear outcomes-based approach to streamline our rulebook, lowering costs for businesses and supporting the competitiveness and growth of the economy,” Nikhil Rathi, chief executive at the FCA, said.

So, should rules be simplified or removed, could this also improve service under Consumer Duty standards? I say this because data suggests that more needs to be done to satisfy customers.

Essentially, Consumer Duty requires firms to measure, analyse and benchmark their performance across a number of metrics to bolster service.

However, according to research from NTT Data UK – published on 30 July 2024 – 82% of consumers reported no change in interactions with their insurance provider following the act coming into force.

The data also revealed that 46% of customers felt neutral or unhappy with their policies.

The research was conducted using a representative sample of 2,007 insurance policyholders in the UK during December 2023.

Efficiency 

While 99% of consumers polled by NTT Data UK felt that their insurance needs were met to some extent, the figures still suggest there is more that can be done to boost satisfaction rates with the insurance industry.

And, if rules are simplified, perhaps this could help lead to more efficiency, which could – in turn – plug the gap in expectations between regulatory intent and customers’ experiences.

Of course, this is what the FCA wants. It said that it wanted to address potential areas of “complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit”.

It continued: “Consumers should have access to products and services suitable for their needs and which provide fair value, appropriate communications and consumer support, while also improving trust in, and the reputation of, UK markets.

“This call for input will help to ensure our regulation remains effective, streamlined and comprehensible, maximising the duty’s benefits.”

Many within the industry will be looking ahead to post-October, keen to see if the FCA will walk the talk after collating the review responses. Watch this space.