recent “thematic work” investigating practices in the telephone selling of general insurance, the Financial Services Authority uncovered disturbing malpractices. Paul Anning connects to the FSA Report and its findings and lessons
Who: Financial Services Authority
When: June 2007
Law stated as at: 28 June 2007
The FSA carried out a thematic review into general insurance telephone sales made by providers of personal accident insurance, health cash plans and accident and sickness insurance, and reported on its review in April 2007. The review focused on three areas of telesales: 'inbound' calls (where the insurance firm was contacted by a customer); 'outbound' or 'cold-calling' sales and calls made by third-party call centres on an insurance firm's behalf. The FSA discovered alarmingly high levels of sales contravening the ICOB rules, with over 36% of calls making little or no disclosure of significant exclusions or limitations, poor system management and misleading information. The FSA focussed particularly upon influences on customer behaviour, with an overriding concern that firms of all sizes and in all sectors were still confusing customer satisfaction and the wider principal of treating customers fairly.
The FSA gave examples of good and poor practice in each of the three areas:
Generally, inbound sales were of an acceptable quality and any detriment to the customer from poor quality sales was likely to be limited, as such callers are more aware of what they are buying. Good practice included sending policy documents to customers to read before asking them to sign up to the policy. However, firms frequently failed to disclose information about optional 'add-ons' such as legal expenses cover and payment protection insurance. Inbound callers did not always receive enough details of significant exclusions and limitations eg. travel insurance policies were sold to customers who were not told that they may not be covered for pre-existing medical conditions.
Quality is poor, with sales personnel signing up customers to policies and then telling them to read the available literature and cancel the product if they wanted. As customers are reliant on what they are told and do not read the literature, such practice was unacceptable. The FSA also strongly disapproved of sharp practices, such as sending policy documents/giving customers the exclusions after they signed for a policy and selling personal accident insurance as a suitable substitute for travel insurance when it did not offer the wider cover provided by travel insurance (eg. medical treatment, cancellation and lost baggage).
There was also concern that outbound selling firms were more likely to discipline staff for poor sales performance than poor compliance performance.
The fact that the FSA visited a number of third-party call centres demonstrates that the regulator finds this an area of great concern. The FSA was alarmed that these firms had little understanding of their obligations and were reliant on the firm whose products they were selling for scripts, sales processes and systems aid controls. A lack of clarity about who of the third-party call centre or the firm was responsible for treating the customer fairly meant that this principle was rarely considered by sales personnel. In contrast to in-house sales teams, third-party call centres had short training programmes and little additional supervision. Another worrying habit was that the heavy involvement shown by insurers at the beginning of a campaign waned during the course of the campaign despite the heavy turnover of staff.
The Regulator also exposed 'significant weakness' across all three areas in the monitoring and oversight of supervisors and remuneration policies that rewarded staff for hitting volume targets rather than for quality and client retention.
Why this matters:
There are two reasons why this matters:
– Final warning – the FSA is clearly not happy that two years into its regime and after specific industry bulletins relaying its concerns in this area, there is still such a high level of non-compliance. The Regulator has shown its intention to continue to explore and expose areas of bad practice and has advised all firms to review their scripts and procedures to ensure that they are complying with the FSA's standards.
– Focus on outcome – consistent with its 'Treating Customers Fairly' theme, the FSA will be 'targeting' its supervisory work with firms to ensure their cold-calling operations are meeting the standards that it expects, and there will be no excuse for firms outsourcing their sales to third-party call centres "where there are a number of firms involved…… all firms need to consider carefully their obligations to ensure that they treat their customers fairly".
Osborne Clarke, London