In November we reported1 on an announcement by the British Insurance Brokers’ Association (BIBA) and the Association of British Insurers (ABI) that they were working on a voluntary Code of Good Practice (the Code) for managing the insurance renewals of potentially vulnerable customers. The Code has now been published and is available here2.
The Code aims to ensure that any customer who is “significantly less able than a typical consumer to protect or represent his or her interests” does not unduly suffer detriment at renewal as a result of this vulnerability. The Code acknowledges that definitions of “vulnerability” may vary, but draws attention to the FCA’s February 2015 Occasional Paper on consumer vulnerability3 which identified several risk factors that may lead to vulnerability in financial services. The factors identified by the FCA include low literacy, numeracy and financial capability skills, a severe or long-term illness and mental health problems.
The Code gives some examples of how this vulnerability could cause customers to suffer a detriment upon renewal of an insurance product, such as a reduced ability to shop around, a heightened trust in the existing product and a reduced ability to compare products and to understand their different features.
The Code sets out practical guidance on how insurers and brokers should communicate with potentially vulnerable customers, and how they can improve their business processes in relation to vulnerable customers. The practical steps include:
- Proactively asking potentially vulnerable customers whether their current policy and renewal offer meets their ongoing needs, and making clear to them that they should review their cover at renewal.
- Considering whether additional communication or a different form of communication would be appropriate compared to the standard approach to customers at renewal.
- Ensuring that communication with potentially vulnerable customers always sets out the options at renewal and how those options can be exercised.
- Ensuring that staff are trained to recognise and understand potentially vulnerable customers, to listen to their needs and to offer options which address those needs.
- Periodically reviewing customers on legacy products and taking proactive steps to ensure that any products held by a potentially vulnerable customer continue to meet his or her needs.
The Code is voluntary and will sit alongside applicable legal and regulatory requirements. The Code is effective from 1 January 2016, but gives insurers and brokers until 1 January 2017 to comply with its commitments. In addition to publishing the Code, the ABI has written to the FCA asking for regulation to improve clarity and transparency at renewal for all home and private motor insurance customers.