In Focus: What’s going on with claims service as FCA clamps down on Consumer Duty?

Just before the Consumer Duty regulations were implemented in July 2023, the FCA wrote a letter to insurance firms about how it expected the new rules to be implemented.

Within the letter, it set out a section for claims processes and outcomes, with the regulator stating that the experience of making a claim “will generally be when the product’s value and service are put to the test”.

“Firms should ensure they support consumer understanding and deliver good outcomes throughout the claim journey, through timely and appropriate communications,” it said.

“We expect firms to ensure customers are at the centre of the claims process, so that unreasonable delays to claims processing are avoided and fair claims settlements are made.”

However, latest figures from the Financial Ombudsman Service (FOS) show that the number of complaints about general insurance and pure protection complaints is on the rise.

The data, which was published on 1 May 2024, showed 22,845 complaints were made in H2 2023, up from 19,346 in H2 2022.

Stephen Kennedy, director of pricing at Pearson Ham, said that while price increases was a key factor in this, there were more complaints being made about claims as well.

“It’s an interesting one because we have seen the level of complaints increase significantly and a lot of that is around increase in prices,” he said.

“So, wherever you see premiums increasing, that drives additional complaints. But there are more complaints coming in around claims as well.

“The key metric is the percentage of claims which have been upheld – that has increased as well.”

Clamp down

Amid a rise in claims complaints, the FCA announced in March 2024 that its Business Plan 2024/25 would have a focus on Consumer Duty implementation.

The rules require firms to measure, analyse and benchmark their performance across a number of metrics to bolster service.

These metrics include products and services, fair value, consumer understanding and consumer support.

In its business plan document, the FCA explained that it would continue to test higher standards for regulated firms by embedding the Consumer Duty and “take action where appropriate” to ensure market integrity.

Michael Sicsic, managing partner at risk and regulation consultancy Sicsic Advisory, said: “The Consumer Duty remains high on the agenda. The consumer issues it raises, such as cost of living pressures, access and financial inclusion, fraud and scams can all be viewed through the consumer lens.

”In insurance, it will look at how quickly firms respond to claims, including where customers show characteristics of vulnerability.”

James Blyth, managing director of Coplus, said that from a claims perspective, Consumer Duty and the clamp down on the rules came at a “tricky” time.

For example, he said that call answer times had been affected due to factors such as the Covid-19 pandemic.

”Consumer expectations at that point were probably at an all time low with everything that had gone on,” he said.

”There was almost an acceptance that answer times on the phone had been affected by certain issues.

”Because of those things as well, some of those departments are quite under-resourced.

“The industry has now had to catch up, to bring the service back to where it needs to be to fall in line with a new framework.”

Neil Garrett, UK and Ireland sales director at Verisk, added that firms were facing more “pressure” as a result of the FCA’s clamp down.

“If they’ve not got correct audit trails on those claims journeys and how they are looking after that customer, they are going to have to figure all of that out,” he said.

Digital

To help with claims response times following the pandemic, the insurance industry has started to become more digitised.

For example, it was noted that the pandemic had fast-tracked the adoption and implementation of touchless claims – which refers to a claim filed with very little contact from a human, often via an app – during a roundtable hosted by Future Processing last year (15 June 2023).

Blyth said the pandemic had allowed digital ways of working to accelerate, but felt “it’s not really customer tested as well as that voice aspect of handling claims”.

However, Garrett said that with more people wanting to interact digitally, it was key that innovations were living up to Consumer Duty standards.

“What is interesting is the way people interact and want to interact on a digital basis and how that then becomes relevant to the Consumer Duty,” he said.

“Are we treating customers fairly in terms of logging claims digitally? Are we doing everything we would do in a phone channel on a digital channel?”

Keys to a good service

In turn, Blyth said that while response times may be looked into by the FCA, a strong claims service was about how effective the response is, whether it was over the phone or digitally.

“The framework, what it is saying is that you need to make sure that the product is always improving via the utilisation of management information,” Blyth added.

“But also, the metrics that are being looked at in regards to response times and stuff like that are not necessarily the correct metrics really.

“It’s not about the response times, I think it’s how effective the responses are.

”My argument would be it’s not necessarily about the response times, but it’s about the amount of touches per file.”

Garrett felt it was key to listen to what customers want and to also be transparent in valuations for a service to be as effective as possible.

“[Firms should] make it available for the customer to log a claim how they want to log the claim,” he said.

“And there’s the offer that is made on a claim. So, transparency is probably the biggest key.

“[For example], if an offer is going to be made on a claim, [you need to ask] ‘what’s my proof that it’s a fair and reasonable offer’.”

Meanwhile, Chris Birkett, chief executive of Winn Group, said that protocol arrangements can “significantly benefit claimants and align well with the FCA’s Consumer Duty”.

Protocol arrangements are designed to help ensure claims are handled efficiently to help reduce delays.

“This translates into faster settlements which reduces inconvenience and stress during what can be a challenging time,” Birkett said.

“They often include standards for service quality and transparency, ensuring that claimants receive fair treatment and have access to clear information throughout the claims process.

“This aligns with the FCA’s focus on promoting fair outcomes and transparency in the insurance sector.”