The global regulatory agenda is becoming increasingly focused on conduct of business issues, with many supervisors now beginning to target their approach to include:
- more intrusive supervision;
- early intervention and preventative actions before customer detriment can occur;
- a tighter focus on product focused and on the root causes of poor customer outcomes;
- significantly lower tolerance for customer detriment;
- more credible deterrence.
The approach of many supervisors continues to build upon the G20 concepts of Treating Customers Fairly and Customer Outcomes – and also includes some key learning from recent insurance conduct issues.
Meanwhile, the new approach is moving away from the traditional focus on point-of-sale to focus instead on product design and customer value – in particular the product development process and governance, product features and customer needs and product suitability and its intended consumers.
Implications for insurers
Insurers will need to develop a conduct risk framework – one that is capable of adequately oversighting the firms conduct agenda and which is incorporated within the overall enterprise risk framework used. The following are key features of what this framework is likely to require:
- An increased focus on customer insight and management information (MI) in driving strategy, sales and product design.
- Robustness of new product design (NPD) processes. Supervisors are increasingly setting out their expectations for firms’ NPD processes. Firms will need to have a clearly documented and robust process in place, be able to evidence how it is used – and to demonstrate appropriate governance. It seems likely supervisors will become more intrusive in this area.
- Suitability of existing products. It seems likely also that supervisors will continue to challenge the suitability of existing insurance products – particularly when products are very profitable.
- Quality and suitability of sales and distribution. Several insurance firms have already faced investigation and – in some cases – enforcement action in relation to sales practices. All firms should ensure their sales and distribution methods meet regulatory requirements.
- Appropriate remuneration and reward. Supervisors are likely to continue with a focus on remuneration and reward for sales staff. Firms will need to prove their remuneration and reward schemes drive quality.
- Compliance levels of financial promotions and the robustness of financial promotions approval processes. Many supervisors have announced they will increasingly focus on financial promotions, will be taking immediate action against unsuitable promotions and will be given powers to publicly name firms they take action against. Firms can expect thematic visits and an increased level of scrutiny regarding promotions.
- Improvement required in post-sales processes – including complaints handling and post-sales reviews. Supervisors will increasingly consider post-sales activity a key component of the wider treating customers fairly agenda and insurers will need to incorporate such analysis into their risk management.