Why insurance industry should focus on long-term gain of Consumer Duty regulation

The insurance industry has been told that it needs to focus on the long-term gain of the FCA’s new Consumer Duty regulation despite the journey towards implementation having not been easy in the short term.

Catherine Carey, head of consumer strategy at consultancy Consumer Intelligence, told Insurance Times that there were “rewards to be had” by companies that get the implementation of the new regulation right when it comes into force from the end of this month (31 July 2023).

Consumer Duty creates new requirements for firms within the sector to ensure – and crucially, evidence – positive customer outcomes around four metrics, which are products and services, fair value, consumer understanding and consumer support.

While this represents significant extra regulation for firms operating in the general insurance market and has created considerable extra work where reporting is concerned, Carey said the shift to a customer-focused approach can help bolster their reputation.

And she felt this could result in “favourable word-of-mouth marketing”.

“By prioritising customers’ needs and ensuring fair treatment, insurers can build loyalty and trust, leading to increased customer retention and new business opportunities,” she added.

’Prompt improvements’

In an update on how firms were progressing in their implementation of the new regulation, the FCA said it wanted firms to prioritise areas that would have the biggest impact on outcomes for consumers.

It added that firms should ensure they were making changes so that consumers received communications they could understand and offered fair value.

Carey said that with the regulation giving customers the power to hold firms accountable if they fail to deliver on their promises, “this empowerment can lead to a more resilient industry”.

“[This is because] firms are motivated to maintain high service standards to avoid potential consequences,” she said.

“The Consumer Duty can prompt improvements in the quality of products and services by incentivising firms to focus on customer needs and satisfaction.

“Regular market research can assist insurers in understanding evolving customer needs and adapt their offerings accordingly.”

She added that regulation’s emphasis on accountability and transparency “can also encourage firms to enhance product quality to maintain compliance and customer trust”.

“Trust and loyalty amongst customers can be achieved by honouring promises, treating customers fairly and offering high-quality products and services,” she said.

“Personalised solutions, proactive customer service and a commitment to resolving issues promptly can significantly contribute to this process.

“A culture of trust and loyalty can lead to enhanced customer retention and business growth, thereby contributing to the overall success of a company.”