In April the FCA announced the preliminary results of its claims handling review which found no evidence of systematic failings in retail claims handling practices. The thematic review focused on personal lines, specifically household and travel insurance products.
On May 22, the FCA published a full report on the thematic project (TR14/8). The FCA reviewed claims practices within ten insurers, selected against a range of criteria including size, product range and business model. Firms reviewed included London Market companies, Lloyd’s managing agents and third party administrators to assess how claims are handled across these chains of delegation.
The FCA found that 64 per cent of claimants were ‘satisfied’ or ‘very satisfied’ with how their claim was handled overall. Not surprisingly, satisfaction levels were much lower for unsuccessful claimants. The FCA looked at insurers’ claims philosophies and strategies and found ‘virtually no evidence of insurers trying to push down aggregate claims costs by not settling valid claims, or systematically trying to squeeze the settlement cost. There was also no evidence of insurers deliberately delaying settlement, however, the FCA found that poor claims management often led to delays.
Key issues emerging from the review are:
- Recording and use of inbound claims calls. The FCA notes that insurers receive high volumes of claims-related calls which do not result in a claim and there is no consistency in how these in-bound calls and results are categorised. Inbound call traffic is potentially an important source of information for insurers and, if analysed carefully, can reveal unclear policy terms or product complexities.
- Communication and ownership throughout the claim. Consumer research revealed that good communication throughout the claim is an important driver of policyholders’ overall satisfaction and includes, among other things, setting and managing expectations and keeping policyholders informed.
- Management of supply chains. The FCA looked at the use of loss adjustors and third party suppliers in settling household claims and found numerous instances of incorrect instructions being sent to suppliers and consumer dissatisfaction with supplier services. The FCA suggests that insurers still have a way to go to improve the consumer experience and ensure failure rates are low.
- The emergency assistance activities of travel insurers. The FCA saw evidence of good consumer outcomes and culture in this area but warns of how important it is for consumers to ensure they have the right insurance when travelling abroad.
- Travel insurance in relation to medical conditions. Senior claims managers interviewed in the review said that disclosure, especially around pre-existing medical conditions, is a significant problem. The FCA questions whether insurers’ requirements are expressed in language that most consumers understand and if information requirements are sufficiently clear.
- Consumer outcomes in long chains of delegation. The review found that chains of delegation, particularly in the London Market, can be very complex involving numerous parties. The FCA found that processes to collect and feedback information about policyholders’ experiences during the claims process do not appear to be place in long delegation chains.
- The clarity of product documentation. Consumer research found that the length and legalistic nature of policies and other documents deterred consumers from reading them. The FCA notes that some interesting ideas emerged during its interviews with firms and some insurers acknowledged that the industry has not yet achieved the right balance in its documentation between setting out the legal basis of the contract and clearly explaining policy terms for the customer.
The FCA concludes that household and travel insurers, as well as other firms, should review the findings of this project and consider where changes could be made to their claims processes to enhance customer satisfaction. The thematic review has provided the regulator with a foundation for future supervisory work, both for individual insurers and across a wider cross-section of firms.
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