Treating Customers Fairly

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Treating Customers Fairly
TCF
The Insurance Institute of Manchester 12th
October 2005
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Mike Cranny FCII Chartered
InsurerDirector ..Create Solutions..Providing
Training and Compliance Services to the
Insurance Industry
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Questions

• Is the FSA gold plating the regulations?
• Is TCF good Business Practice?
• Why is it that customers confidence in Insurance
  so low?
• Is it possible to be ethical in a free and
  competitive market?

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Treating Customers Fairly
What it isnt

• What it is

What the FSA expect from you
What to do about it
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TCF
Is the FSA gold plating the regulations?
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The Main Principle

• Principle 6
• A firm must pay due regard to the interests of
  its customers and treat them fairly.

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Other Relevant principles

• Principle 1 - A firm must conduct its business
  with integrity

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Other Relevant principles

• Principle 7 A firm must pay due regard to the
  information needs of its clients, and communicate
  with them in a way that is clear, fair and not
  misleading.

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Other Relevant principles

• Principle 8 - A Firm must manage conflicts of
  interest fairly, both between itself and its
  customers, and between a customer

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Other Relevant principles

• Principle 9 A firm must take reasonable care to
  ensure the suitability of its advice and
  discretionary decisions for any customer who is
  entitled to rely on its judgement

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Is TCF good Business Practice?
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Why is it that Customers confidence in
Insurance so low?
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Why is Customers confidence in Insurance so
low?

• 12,000,000,000
• compensation for
• pensions
• 16,000,000,000
• compensation for
• Endowment mortgage

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(No Transcript)
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• Is it possible to be ethical in a free and
  competitive market?

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Treating Customers Fairly
What it Isnt
Being nice to customers or creating satisfied
customers
Offering the highest level of service
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Treating Customers Fairly
What it Isnt
Intended to create new rules or obligations, or
checklists
Intended to make everyone adopt best practice
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Treating Customers Fairly
What it is
The FSA say
We have yet to establish a final definition of
fairness
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FSAs definition of a customer

• (1) (except in COB 3
• ICOB, MCOB 3 and CASS 5 7
• a client who is not a market counterparty.5
• (2) (in COB 3
• and MCOB 35, 7
• a person in (1) or a person who would be such a
  person if he were a client.
• (3) (in ICOB) a person who is a policyholder, or
  a prospective policyholder, of a policy other
  than a reinsurance contract.7
• (4) (in CASS 5 ) a client.7

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With it so far?
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Types of Customer
The Dependant Customer The Mass market
Customer The Expert Customer
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• What does TCF mean for my firm?
• Ensuring management understanding
• Defining strategy and Principles

• Gap Analysis
• Assessment of risks to fair treatment of
  customers
• Identification of areas not meeting TCF
  obligations

• Lessons learned
• Review actions
• Communication

• Action Planning
• Prioritising Tasks
• Securing resources and accountabilities
• Defining Measures
• Management Information

• Implementing and monitoring
• Tracking Progress
• Making Changes
• Monitoring outcomes and delivery
• Identifying Remedial action

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Who does it apply to?
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Who does it apply to?

• All regulated firms regardless of their size
• Includes ALL Insurance and Mortgage Brokers and
  Insurers
• Everyone!

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Its crunch time ! So what do the FSA expect
from you?
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What the FSA expect from you

• To define what TCF means in your business
• That Senior management are directly involved
• That you make your own assessment of what is
  appropriate in your business

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What the FSA expect from you

• That you challenge the familiar ways you do
  business
• That you carry out a formal Gap Analysis

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What the FSA expect from you

• That you have a formal programme
• That you set clear priorities and targets
• That you obtain feedback to see if it is working
• That you engage staff, train and motivate them

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What the FSA expect from you

• You improve your Management Information if
  necessary
• To engage with trade associations
• Finally to embed TCF into all aspects of your
  operations

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What to do about it
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What to do about it Key Areas for Review

• Strategic Change
• Management Information
• Remuneration

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What to do about it Key Areas for Review

• Complaints Management
• Interface between Broker/insurer
• Product Design Lifecycle

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What to do about it

• Review your advertising including renewal and NB
  letters
• Review how you give advice and the whole sales
  process
• Review all communication documents LessMore
• Review Small Print

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What to do about it

• Review your staff training
• Record and investigate arguments
• Understand your products
• Conduct a risk assessment
• Keep accurate records
• Ask Staff about Hot Spots

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Ask yourself these questions

• Are there areas of our business where we are
  currently uneasy about our practices?
• What service are we contracted to offer.
• What service do our customers expect

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Ask yourself these questions

• Are there areas where we are often justifying our
  actions or that of insurers?
• What are the areas where clients are materially
  at risk?

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Conflicts of Interest
Differential commissions Net rated
Products Bundled services e.g. ULR Referrals to
others Special Schemes Affinity Schemes
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Conflicts of Interest
White labelled Products Delegated
Authority Flexibility on rates Volume
Overrides Profit commission Failure to re-broke
at renewal
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Conflicts of Interest
Pre-renewal discussions with Insurers Selling
only on price Cosy relationships Client v Client
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• Caveat Emptor
• or
• Utmost Good Faith

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Mike Cranny FCII Chartered
InsurerDirector Create Solutions LtdProviding
Training and Compliance Services to the
Insurance Industry