The FCA’s 2024/25 Business Plan emphasised the regulator’s focus on consumer outcomes. The overall context is provided by the FCA’s Consumer Duty rules, now in full effect. These rules move the financial services industry from a world where firms must demonstrate that they treat customers fairly, to a world where this fair treatment leads – consistently and demonstrably – to good outcomes.
While this is an overarching commitment, the FCA has and will focus on some clearly-defined activities to examine how firms are applying the Consumer Duty in practice, including multi-form work looking at how quickly the insurance industry responds to claims, paying particular attention to consumers with actual or potential characteristics of vulnerability.
It isn't surprising that claim delays are a focus: in 2023 the Financial Ombudsman Service (FOS) reported a 50% rise in complaints about buildings and car / motorcycle insurance, which are the highest they have been in five years.
For insurers, who are under increasing pressure to reduce premiums, delays can be expensive, especially when considering the costs of handling the resulting complaints. Insurers will need to continue to focus on resolving claims quickly, efficiently and fairly – aligned to a clear articulation of what constitutes a good outcome from a claim – to help improve outcomes, avoid complaints, reduce costs, and ultimately retain their customers.
Improved communication with customers can go a long way to help manage expectations and avoid complaints. The Consumer Duty is an important factor here: the rules require firms to ensure that customers know what they need to know at each stage of a customer journey to support good decision making and good outcomes, and for firms to have reason to believe that consumers not only receive timely information but genuinely understand it.
Whether it's a known delay, or something outside of the insurer’s control, giving consumers up to date information can help avoid foreseeable harm, dissatisfaction, and the resulting burden on contact centres.
Timely acknowledgement, clearly setting out what will happen when, proactively updating customers at key points in the claim journey and ensuring their preferred channel is all part of clear communication to customers. Where possible, meaningful responses should be provided. However, while improving communication can help reduce the impact of delays, it won't replace the need to tackle their root cause.
The availability of and improvements in AI is helping insurers to expand and accelerate their claim automation ambitions. Digitisation and automation of claim processes can help to streamline the entire claim lifecycle by simplifying first notification of loss, automating policy and claim validation, and fully automating claim settlement. This can often allow simple claims to be processed instantly.
Some insurers are also increasing their use of AI to identify and track consumer feedback and sentiments, and using these outputs as part of their management information to measure Consumer Duty adherence.
Of course, technology works best when paired with skilled and empowered human beings, who are essential when helping those customers who fall out of the automated journey or require the human touch for particularly difficult or sensitive claims. Insurers should invest in their people alongside their technology to ensure that customers receive a timely claim outcome, whichever route the claim takes.
A chain is only as strong as its weakest link, and so it is with supply chains.
Without careful management, the supply chain can cause foreseeable harm and poor outcomes in the claim lifecycle, with handoffs leading to delays and dissatisfaction. Insurers are working hard to ensure their suppliers are fully aligned with their own processes and strategies. This includes ensuring that technology works seamlessly across the whole customer journey, key performance indicators (KPIs) are aligned, and customer expectations are set and met.
The identification of vulnerability is key to ensure such customers are treated appropriately. Again, the Consumer Duty rules are very important – firms must be able to show that outcomes for consumers with characteristics of vulnerability are at least as good as for consumers generally, and to meaningfully intervene if this isn't the case. Insurers are continuing to invest in the training of frontline staff to help quickly identify vulnerability and ensure that technology solutions are robust enough to flag signs of vulnerability to claims teams.
However, a good-practice approach to identifying and managing consumer vulnerability goes beyond placing flags or markers in a system (as important as this is). Mature approaches to vulnerability answer not only the question of ‘is this person vulnerable?’ but also ‘what support does this customer need?’ Firms that can then show that this support is indeed provided, and leads to good outcomes, will be well-placed to demonstrate Consumer Duty adherence as well as having good stories to tell the market.
There are several other actions that firms can take to help vulnerable customers through the process.
A well-designed claims journey to best enable and realise a clearly articulated understanding of what constitutes a good outcome is fundamental to their experience. This doesn't necessitate the claim being upheld; rather it's about it being acknowledged and adjudicated promptly and fairly. Firms should also use MI generated by their claims activities to help them continuously assess the capacity of the insurance product to consistently generate good outcomes for a defined target market.
Giving customers a choice in the channel they use to submit and manage claims and teams the flexibility in how they approach these these cases, for example, offering interim payments where customers are showing signed of financial vulnerability, can help people feel that there individual needs are being met.
Setting up an effective framework for preventing and managing delays means that insurers can not only prevent them from happening in the first place, but also reduce the impact where they are unavoidable.
To learn more about claims delays, and how insurers can improve them, contact Stuart Riddell or Richard Gibbons.
