In many respects the Financial Services Authority (FSA) has an unenviable task and finding the right balance between commercial enterprise and consumer protection is no easy job.
What must be hugely frustrating for the watchdog in Canary Wharf is that in some of its communications to the market it is criticised for being too technical and long-winded, while in others where it speaks frankly of the problems that exist, little seems to happen.
This is particularly true of the payment protection insurance (PPI) market, which has been under scrutiny for many months. Despite clearly outlining the problems it has found, there continues to be a number of firms that have done little or nothing to bring their product design and sales processes up to scratch and now face sanctioning from the FSA as it steps up its enforcement action in this area.
Serious problems
Releasing the latest findings from its ongoing thematic review of the PPI market, the FSA said that a number of serious problems remained in the market and it was disappointed that there had been no improvement since its last round of mystery shopping. It stated: “Many firms are still not giving customers clear information about the product and what it will cost; not telling them the extent to which they are eligible for PPI cover and what they are covered for; and not telling them why, where advice is given, the recommended policy meets their needs and demands.”
Not only is the regulator worried that firms are falling short of the requirements made by ICOB, but also that its ‘Treating Customers Fairly’ (TCF) principles, which should be central to any business in the market, are not being taken seriously. The FSA has clearly set out a timetable for firms to get their act together on TCF and in its PPI report, it added: “We have set firms a deadline of December 2008 to complete their work on TCF and to demonstrate they are consistently treating their customers fairly in all aspects of their business, including PPI.”
Although there is undoubtedly a lot of work for some PPI brokers and providers to carry out if they are to reach the FSA’s benchmark, there are also a number of firms that have worked hard to ensure the PPI they offer works effectively for clients.
Important role to play
Nobody doubts the effectiveness of PPI as a consumer safeguard and so as long as it is sold appropriately it has an important role to play. The key to any financial product is that it fits in with the needs, circumstances and budget of any prospective client.
As such, it is impossible to sell a single insurance policy to every customer who comes through the door and expect it to do the right job for them. There have been criticisms of various products in the market, such as single premium covers, but the truth is that they all have a genuine place in the sector if they are sold correctly.
The trick is identifying when the product is suitable and explaining why it works better than anything else available to the client. This approach is one that a number of firms are taking and in turn it pays dividends in terms of conversion rates, customer satisfaction and compliance.
If a client is young, then why should they subsidise older clients on the book and pay more than necessary for cover? As such, age-banded insurances can be very useful and offer an alternative that is not always an option elsewhere. In the same vein, older clients do not want to be penalised for their extra years and flat-rated products are likely to be more suitable.
There is also no reason why the purchase and administration of PPI needs to be overly complex or confusing. Front end IT systems should make it easy for clients researching the market to see what is available and allowing them to speak to underwriters will help them get the best price for the most suitable product.
Consumers are now more savvy in this sector and realise that they do not need to stick with the cover that was sold alongside their line of credit. As such there is a huge opportunity for those who can make switching from these arrangements easy.
There are also opportunities to review the cover a consumer has in place at this juncture and often there will be gaps, which additional life benefits can cover.
Back book business
While getting things right at the front end is obviously important, providers and distributors should also be wary of the performance of their back book of business.
By monitoring back end performance and reviewing cancellation rates, complaints and claims declinature rates it becomes possible to address issues where they exist, make improvements for the future and clearly demonstrate that TCF is a key concern.
Despite the issues that have been raised over the PPI market, there are wonderful opportunities for those who are prepared to invest the time in getting their approach to the insurance right.
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