Who: The Association of British Insurers and the British Insurance Brokers Association
When: 11 January 2016
Law stated as at: 11 January 2016
The Association of British Insurers (ABI) has paired with the British Insurance Brokers Association (BIBA) to produce a Code of Good Practice (the Code) to assist insurers and insurance brokers who are members of BIBA in their interaction with “potentially vulnerable motor and household customers”, in respect of insurance products sold and/or services offered in the UK.
According to the Code, which came into force on 1 January 2016 (but which is voluntary only), “potentially vulnerable customers” are individuals “who may be particularly at risk in their interaction with financial services providers, due to a certain set of circumstances, characteristics or processes that may affect their ability to make an informed choice”. This rather broad definition is designed to ensure that any individual who would be “significantly less able than a typical consumer to identify, protect or represent his or her interests” does not unduly suffer a detriment at renewal of his/her insurance policy as a result of this vulnerability.
The Code itself does not define “vulnerability”, but it acknowledges that definitions of the term may vary depending on each firm’s customer base. However, it draws attention to the Financial Conduct Authority (FCA)’s February 2015 “Occasional Paper no.8: Consumer Vulnerability” which identified several risk factors that may lead to vulnerability in financial services, including:
- Low literacy, numeracy and financial capability skills;
- Severe or long-term illness;
- Change in circumstances (e.g. job loss, bereavement, divorce); or
- Lack of English language skills.
Drawing from these risk factors, the Code further highlights how this “vulnerability” could result in a number of disadvantages for customers engaging with the insurance industry; such as a reduced understanding of alternative products or providers; a heightened “trust” in the product or premium offered by their current insurer or broker; a reduced ability to compare products or a lack of understanding of their features and how they may impact on them.
In a bid to tackle these issues efficiently, the Code sets out practical guidance in respect of “customer commitments” for insurers and brokers to observe in their business processes and their renewal communication with potentially vulnerable customers, a few of these being around:
- Training: Ensuring staff are adequately trained to recognise and understand potentially vulnerable customers at renewal and are able to offer flexible options to help address needs (where necessary).
- Policies: Periodically reviewing legacy policies to, where possible, identify vulnerable customers and ensure they are aware of any more suitable alternative products available.
- Monitoring: Asking potentially vulnerable customers at renewal if their current policy and renewal terms meet their needs, and making clear the importance of reviewing their cover.
- Communication: Considering if additional communication, for example a telephone call, is needed to help vulnerable customers through the renewal process and explaining that factors affecting their premium may have changed since their last renewal.
- Choice: Ensuring that the customer’s options, and how they can exercise them, are always clearly set out.
The Code will sit alongside applicable legal and regulatory requirements and will give insurers and brokers 12 months to comply with its commitments. In addition to publishing the Code, the ABI has also written to the FCA asking for regulation to improve clarity and transparency at renewal for all home and private motor insurance customers.
Why this matters:
According the Paul Evans, Chairman of ABI, such a Code is welcomed in order to “build the reputation of the industry and the trust of customers”, while Lord Hunt, Chairman of BIBA believes that “a published code will raise awareness of where customers can obtain additional support and advice when they need it and also boost the trust in the insurance sector”.
However, some have queried the efficacy of the Code in terms of long term impact on the industry. Indeed, according to Rod Jones, insurance expert at uSwitch.com, “the joint code is a step in the right direction” but the guidelines that come with it don’t go “far enough” and because of the voluntary nature of the Code, “insurers are under no obligation to provide information and advice about insurance premiums when policies are due for renewal”.
Other critics also raised concerns that the Code should not only benefit “potentially vulnerable consumers”, but actually all consumers faced with insurance policy renewals and unknown premium increases.
Meanwhile, the ABI and BIBA have given themselves until 1 November 2018 to review any changes to the legislative and regulatory environment, and make a recommendation to the ABI General Insurance Council and the BIBA Main Board as to whether the Code should continue in its current form or be amended.
Osborne Clarke LLP will be monitoring the progress of such review and we will report back on the outcome in due course.