Over the last month we have seen a number of insurers come out with new and innovative ways of helping customers suffering from financial hardship. The options made available range from premium holidays, benefit reduction options all the way through to deferred premiums. Whilst any support insurers can give to clients at this difficult time is welcome, the FCA’s Coronavirus and customers in temporary financial difficulty guidance released yesterday will lead to many insurers reviewing what they offer. In this article we look at the key points raised by the FCA and how this might affect current initiatives from insurers.
The aim of the FCA guidance is to prompt firms to help qualifying customers, where possible, to:
- Reduce the impact of temporary financial distress.
- Ensure that customers continue to have insurance that meets their demands and needs.
This is especially welcome as many of the initiatives introduced by insurers, such as premium holidays, mean that clients don’t lose valuable cover at a time when they might need it most. The emphasis on ensuring that customers continue to have insurance that meets their “demands and needs” should not be lost and is a key theme throughout the guidance.
The FCA are asking insurers to focus on customers that have contacted them because they are struggling to pay premiums and those that have missed premiums. Whilst we would agree that these clients should be the main focus we would also encourage insurers to do more to contact clients regardless of whether there are indications of financial distress in order to highlight that there are options available if this is an issue. Indeed, the FCA state that firms “should make clear in their communications, including on their websites and apps, the different options available to customers, and encourage them to make contact if they are experiencing temporary financial difficulty as a result of the coronavirus.”
For customers that do make contact with an insurer, the FCA highlight a number of steps which the insurer could consider to help the customer understand their options. These include:
- “Re-assessing the risk profile of the customer. It might be that the risk profile of some customers has changed because of coronavirus”. An example of this might be that the client is paying for children’s critical illness, when their children are grown up and therefore unable to claim. In such a scenario the insurer may suggest removing such cover to reduce premiums. Clearly where decisions are being made to alter or reduce cover the adviser will want to be involved and we would therefore suggest that insurers discuss the options and refer the client back to their adviser before any final decisions are made.
- “Considering whether there are other products the firm can offer which would better meet the customer’s needs and revising the cover accordingly.” This may be more difficult for most insurers especially when the client has been introduced by an adviser and as such insurers should refer the client back to their adviser who can do this for them.
These steps should not be new initiatives for insurers and should be part of their process for vulnerable customers regardless of the current crisis. From discussions we have had with insurers most already have similar conversations with their clients in some form but none the less it is good for the FCA to re-iterate to insurers the importance of having such conversations. This is also a good starting point for conversations between advisers and their customers when facing financial difficulty.
Where such steps do not alleviate the client’s financial difficulties, the FCA “expect” insurers to offer a payment deferral option. This expectation will have the biggest impact for insurers. Up until now much of the focus has been on providing premium holidays with many insurers not maintaining cover whilst the premium holiday is in effect. A payment deferral option will enable a client to stop paying premiums for a period of time whilst maintaining cover with the premiums collected at the end of the deferral period.
Currently both Zurich and LV= offer such a facility. Whilst Zurich set out a period over which the missed premiums can be repaid once the deferral has finished, LV= actually use their member support fund to pay these premiums meaning the client is not required to repay these. These are both fantastic initiatives which we were pleased to see deployed before the FCA stepped in.
The regulator has been in consultation with the industry since the 1st May around these issues and as such this should not be a surprise for insurers. Their expectation is that measures should be brought into effect no later than the 18th May and we are looking forward to seeing responses to the guidance very soon. It is clear that some insurers will find it harder to implement premium deferrals than others and by no means should this been seen as the bar. In fact, quite the reverse, this guidance should be seen as the minimum any insurer does to help their customers and should further encourage more innovation.
The FCA have been very clear on their expectations and it is great to see such emphasis put on how insurers can maintain cover for clients suffering from financial hardship whilst reducing or putting on hold premiums. Other areas of financial services such as the mortgage industry have been leading the way in this area and it is our hope that this guidance will spur the protection industry on to do more and insure that valuable cover is not cancelled at a time when clients might need it most.