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Monitoring Consumer Duty Outcomes: Key findings from the FCA’s Multi-firm Review in the Insurance sector

Who is this blog for?

Board members, senior executives, Consumer Duty champions, and those leading the implementation, monitoring, and reporting on the Duty for retail financial services firms.


At a glance

  • In late June, the FCA published its insurance multi-firm review of outcomes monitoring under the Consumer Duty. It sets out the FCA’s key findings from its review of 20 larger insurance firmsapproach to monitoring outcomes under the Duty. The review also sets out important examples of good and poor practices for firms. The findings are relevant to all retail financial services firms.
  • The FCA found that some firms used data in ways that were unlikely to facilitate scrutiny or challenge. Examples of this include: presenting numbers with limited narrative, context or trend analysis, setting arbitrary thresholds and tolerances around key customer outcome metrics including cases where tolerances were so high as to be unbreachable, and rating metrics as green even when they showed outcome deterioration. The FCA stressed it will take action against a firm if it finds evidence of these poor practices persisting.
  • The FCA found that firms’ approaches were overly focused on processes being completed rather than on the outcomes delivered and few firms were able to provide clear evidence of where the monitoring of outcomes had directly led to the firm taking action to improve these outcomes.
  • The FCA highlighted the need for firms to use a wide range of metrics to monitor customer outcomes, as this provides better insights and is more likely to drive better customer outcomes across all four Duty outcomes.
  • It will be challenging for firms to make meaningful changes to their Duty board report based on the findings of the review in time for 31 July 2024. However, it is not too late to strengthen the narrative around what remains to be done. Firms should ensure their Duty board reports are clear on their plans to improve Duty compliance in the months ahead and what resources and expertise will be required.
     

Overview

The FCA recently published its insurance multi-firm review of outcomes monitoring under the Consumer Duty. It sets out the FCA’s key findings from its review of 20 larger insurance firms’ approach to monitoring outcomes under the Duty. Firms included both general and life insurers, intermediaries and regulated third-party outsourcers providing services to insurers. The review also sets out important examples of good and poor practices for firms. For the FCA, “poor practice” is behaviour that it considers unlikely to meet its expectations for compliance with the standards in PRIN 2A.9 (monitoring of consumer outcomes).
 

Findings and lessons applicable beyond insurance

The findings are not only relevant to the insurance sector but also to other retail financial services firms. Firms should evaluate their Duty outcome monitoring approach, use of data and actions against the issues raised in the review’s findings.

Firms should use these findings to support the development of their first annual Duty Board report and in relation to their work on closed products. There are only a few weeks until the first board report deadline, which means that it will be challenging to make significant changes to its contents and structure. However, it is not too late to strengthen the narrative around what remains to be done and the plans for the year ahead which should incorporate insights from the review’s findings. For example, if firms consider that they need to improve their Duty data framework, it would be prudent to signal their intent and give details of the resources, expertise and time required to achieve those improvements.
 

Areas where firms should expect regulatory action

The FCA found that some firms used data in ways that were unlikely to facilitate scrutiny or challenge. Examples include:

  • Presenting numbers with a very limited narrative and no context or trend analysis behind the data.
  • Setting arbitrary or insufficiently granular thresholds to monitor risk of poor customer outcomes including cases of thresholds being reduced without justification (for example: a single loss ratio threshold across very different products).
  • Setting tolerances that would be nearly impossible to breach.
  • RAG (Red-Amber-Green) ratings that were consistently green even though data indicates negative trends and outcome deterioration.

The FCA will take action against a firm if it finds evidence of these poor practices persisting and customer harm that could have been prevented or reduced with adequate monitoring.

Summary of key findings

The FCA found that many firms need to make improvements in their monitoring capabilities along some examples of good practice. Key messages regarding areas for improvement are:

1. Substance over form is required: firms’ approaches were overly focused on processes being completed rather than on the outcomes delivered.
2. Data needs interpretation and insight: Board or Committee reporting often contained limited insight into actual customer outcomes.
3. Evidence of action: Few firms were able to provide clear evidence of where the monitoring of outcomes had directly led to the firm taking action to improve these outcomes.
 

Detailed findings

The FCA provided examples of good and poor practice around the design of monitoring approaches, types of data used, interpretation and scrutiny, monitoring outcomes for different groups of customers, actions to address poor outcomes and findings mapped to each of the four Duty outcomes.

The findings include examples of the type of data and insights that the FCA expects firms to use to monitor outcomes across each of the four outcomes. These could be particularly useful for firms to benchmark against their current approach. The key message, consistent with prior FCA publications, is that a wide range of products and services metrics gives better insights and is more likely to drive better outcomes. This is also consistent with the findings of our research earlier this year which can be found here.
 

Below we provide a summary of poor practice examples that firms should note:

1. Reliance on monitoring process completion rather than customer outcomes

Some firms reported metrics which showed whether a process has been completed rather than providing insight into customer outcomes delivered. This included firms reporting the number of outstanding value assessments or product reviews. These metrics were often reported with limited or no insight on any learnings or actions to be taken.


2. Lack of monitoring of outcomes in claims settlements

Most insurers were able to monitor the timeliness of claims settlements and number/percentage of declined claims. However, the FCA identified little monitoring of whether good outcomes were being achieved in relation to claim settlements. The FCA reminds firms to consider metrics such as: analysis of overall settlement values, claims complaints, root cause analysis of declined or withdrawn claims, and benchmarking of claims settlements.


3. Repackaging existing data

The FCA was disappointed to find evidence that firms continue to repackage existing data to demonstrate compliance with the Duty. The FCA reminds firms that repackaging or supplementing existing data introduces the risk of the firm not considering the data types and granularity of data that is required to monitor and evidence outcomes.


4. Data unlikely to facilitate scrutiny or challenge

Some firms provided board/committee reporting with data and metrics without including sufficient interpretation or recommendations including potential actions, even where poor outcomes were highlighted. Some firms had also set arbitrary thresholds to monitor risk of poor customer outcomes without proper justification or measurement.


5. Monitoring outcomes between groups of customers including the vulnerable

Some firms showed limited monitoring of outcomes for customers with characteristics of vulnerability. Even if firms could distinguish between the outcomes for different customer groups, most did not demonstrate how they developed a comprehensive approach for monitoring different groups of customers across their suite of outcomes monitoring data.


6. Limited evidence of evaluating impact of change

Some firms were unable to demonstrate how they were monitoring improvements to customer outcomes after they had made changes to deal with poor outcomes they had identified. For example, following a communications review, firms did not demonstrate how they monitored whether the changes had improved customer understanding.


7. Undue reliance on Complaints Data – Price and Value Outcome

Some firms are placing undue reliance on complaints data, particularly in areas such as complaints about the price and value of the product. The FCA believes that the frequency and nature of complaints may be less likely to allow firms to gain meaningful insight into customer outcomes. Placing too much reliance on complaints pushes the responsibility on to customers. However, it is the responsibility of the firm to ensure that there is sufficient data to identify whether it is delivering good outcomes for customers.


8. Reliance on one type of data – Consumer Understanding Outcome

Some firms were highly reliant on net promoter scores and did not give evidence of meaningful insights from their monitoring. Firms with better developed approaches were able to show a wide range of sources, including tailored customer surveys and focus group data.
 

Conclusion

With only a few weeks until the first Duty board report deadline, these findings will be a wake-up call for many firms. The FCA’s expectations on how firms should monitor Duty outcomes are becoming clearer and many firms will have more work to do around the data they are using, how it is scrutinised and challenged, how it prompts action and what it says about different outcomes for different groups of customers.

Firms that have identified data gaps and were more comprehensive in their outcome monitoring approach have been considered to follow good practice. On the other hand, those that set weak tolerances and thresholds for their monitoring metrics, used data that was already available without querying the need to go beyond that, did little to identify differential outcomes between customers and failed to indicate what actions were taken to remediate problems are unlikely to meet the expectations of the Duty. This means firms should expect regulatory action to address the issues identified in these findings. We have already seen some of this action in the insurance sector over the past few weeks, but it is likely to extend to other sectors in the coming months as the FCA starts to scrutinise Board reports.
 

Our thinking