Assessing insurance product value
Financial services regulator, the Financial Conduct Authority (FCA) has confirmed guidance for insurance companies to consider the impact of the coronavirus pandemic on the value of their products.
Sheldon Mills, Interim Executive Director of Strategy and Competition at the FCA, said:
Customers should expect value from the insurance products that they buy, but the exceptional circumstances of coronavirus may have materially reduced the value they are getting.
Today’s guidance is designed to protect consumers by directing insurance firms to review the products they offer to ensure they provide appropriate value and take action where there has been a fundamental change in risk or where certain benefits can no longer be provided.
Firms may choose to go further than this guidance, and we recognise that some firms have already taken steps to support customers, which we welcome.
In the guidance, the FCA sets out what they consider insurance providers should be doing to identify any material issues that affect the value of their general insurance and protection products.
The guidance also says insurers should review their ability to deliver good customer outcomes during these challenging times.
Insurers should focus on reviewing their products where benefits cannot be provided at this time.
For example, insurance products that offer boiler servicing may no longer be viable during the lockdown.
Firms should also consider policies where there has been a fundamental change in risk, where products are now providing little or no utility for customers.
An example of an area where risks have changed is public liability insurance for closed businesses.
The guidance is not designed to cause insurers to reassess the value of insurance products in areas where the likelihood of claims has fallen, as long as the product continues to provide value.
For example, with car insurance policies where fewer miles are driven during the lockdown, these policies still offer utility because theft or fire can still occur.
Insurance companies have been given six months to review their product lines and decide on what action to take.
Actions that arise from these reviews could include changing how insurance benefits are delivered, refunding some premiums to customers, or even suspending monthly payments for a certain period.
In its final guidance, the FCA clarified that firms should consider the value of products where, due to the impact of the Covid-19 crisis, there has been a material reduction in risk, so they are providing little or no utility to customers.
Insurers are not expected to assess the value of their products at an individual customer level. Still, they should continue helping individual customers who face financial difficulties due to the coronavirus pandemic.
The guidance came into force immediately and will be reviewed by the FCA in six months, as things develop.
Customers who are struggling to afford their insurance or premium finance payments because of the impact of coronavirus should contact their insurer or insurance broker to discuss options.
It is crucial people don’t leave themselves uninsured and should not hesitate to contact their insurer.