In a speech to the British Insurance Brokers’ Association (BIBA) this week, the Chief Executive of the Financial Conduct Authority (FCA), Martin Wheatley, announced the launch of a thematic review of the general insurance claims process. Stating that insurers have a number of obligations to ensure their policyholders are treated fairly, Mr Wheatley declared the FCA’s intention to investigate the reasons behind recent increases in complaints relating to insurance products and, in doing so, to scrutinise current claims procedures. The full text of Mr Wheatley’s speech can be found here.

Background

Mr Wheatley began by commenting on what he saw as strengths of the UK insurance market. He stated that the industry’s focus on policyholders, in particular its attention to customer service, had been instrumental in helping the London market achieve dominance over the years. However, as the market continued to grow, new challenges arose and to ensure future success, performance to high standards and profits, a new approach to regulation was required.

Mr Wheatley expressed his desire for the FCA to be forward-looking and investigative. He commented that the regulator will offer protection to the market whilst ensuring it operates effectively in the interests of firms and consumers alike.

Mr Wheatley went on to focus on the increased numbers of complaints in relation to insurance products, the majority of which, he said, directly related to the claims process. He highlighted public concern over delays, poor customer service and declinature of apparently valid claims. Mr Wheatley announced that the regulator was commencing a thematic review of the claims process with immediate effect to determine whether such concern is justified.

The review

Thematic reviews, which analyse a particular product, practice or market, are used by the regulator to monitor different firms across a particular sector and as part of its toolkit to supervise regulated businesses and, where necessary, to take action to address risks identified. Other such reviews affecting the insurance market have included the FSA’s review of anti-bribery and corruption in commercial insurance broking and of insurance comparison websites.

This review, which will be conducted in consultation with firms as well as consumers, will have as its particular focus household and travel claims. It will include an assessment of sales made through brokers and regulated advisers selling general insurance policies. To ensure the fair treatment of customers, Mr Wheatley said that the regulator’s analysis must be clear-sighted and must provide answers to a number of questions, such as whether payments are being made in a consistent and fair way when due.

The FCA expects to deliver the findings and recommendations of its review by the end of 2013.

What does this mean in practice?

The outcome of such a review will include identification of good and poor conduct, and may involve rule changes and enforcement action where the FCA considers this appropriate. Mr Wheatley commented: “In the long run, the review might mean we revisit our rules. But what I’m asking today, and what I’d prefer, is for firms to revisit their culture. Is your claims culture fit for purpose in the modern world?”

The insurance market must be prepared to answer these types of questions and co-operate fully to enable the regulator to fulfil its agenda of early action to prevent loss. Historically, the insurance industry has been seen as quick to respond without the need for intervention by the regulator. One such example relates to contract certainty where the FSA challenged the industry to end its “deal now detail later” culture. Self-regulated changes resulted in operational improvements across the industry, enhancing service levels and reducing risk. The market has also been successful, to date, in agreeing its own arrangements on commission disclosure. Alongside the announcement of the FCA review, BIBA and the Chartered Institute of Loss Adjusters separately announced that they have set up a working group designed to “engage with the FCA” on the subject of claims management.

Mr Wheatley concluded that, following the financial crisis, few markets in the financial sector have emerged without a conduct crisis but that the insurance market remains strong. Whilst the regulator has emphasised its responsibility to ensure this remains the case for years to come, the response of the insurance market to this latest review may represent a further opportunity for the insurance industry to highlight its strengths and demonstrate its readiness to respond to a forward-looking regulatory agenda.