4th Mar 2016
The Institute of Customer Service is an independent not for profit professional membership body, with over 500 organisational members. Our purpose is to help organisations strengthen their business performance by focusing on raising the standards of their customer experience which in turn will improve their customers’ experiences.
The Institute of Customer Service welcomes the opportunity to comment on
this consultation. Our research shows that openness and transparency is of
increasing importance to consumers and that businesses should see these as a
key driver of their relationship with their customers. There is a clear
correlation between customer satisfaction and trust.[1]
Customer satisfaction for the insurance sector has increased by 1.6
points compared to January 2015. Consumers now score satisfaction with
insurance firms at 78.7 (out of 100), which is 1.7 points above the all-sector
average in the UK Customer Satisfaction
Index, and the sector ranks sixth out of the 13 sectors (see Table 1
below). This shows there is room for improvement and we welcome this
consultation in raising the issue openness and transparency and the way
information is provided to consumers in the insurance sector.
However, we do not think that the proposals in the consultation and in particular the creation a very specific and prescriptive binding rule will provide the best outcome for consumers or firms. The existing rules are sufficient to require firms to provide appropriate information on premiums at renewal. The FCA should instead focus on producing non-handbook guidance to provide resources and encouragement to firms to properly engage with their customers, including best practice and learning from other sectors. This is the best way to ensure properly informed and empowered consumers and customer-centric firms.
Q1. Do you agree with our proposal that firms
should disclose last year’s premium on renewal notices?
No. We think providing clear and open
information to consumers is good for both consumers and businesses but that
regulation is the wrong way to achieve this and that the proposals of the FCA
are too prescriptive. In addition, by focusing on only to one aspect of communication
these proposals fail to address the wider issue of customer engagement.
What consumers think
Our research shows that whilst the insurance
sector performs well compared to other sectors in consumer-reported
satisfaction in terms of the quality of information and advice given, keeping
customers informed and being open and transparent there is still room for
improvement (see Table 1 below).
Most people make contact with insurance companies to get a quote or look
at the offering (29.8%) and satisfaction is high for this contact and ahead of
the all sector average (80.7 and 78.8 respectively). The second most common
reason people made contact was to make a purchase (26.3%) and again
satisfaction is high and close the all sector average (79.8 and 80.0 respectively).[2]
Whilst overall satisfaction for these interactions was high, our
research also looks at what consumer’s value in their interaction with firms.
This shows that amongst other things they value the quality of information and
advice, being kept informed and, openness and transparency. The sector does not
perform as well on these measures as other parts of the economy (for example
compare to the retail sector in Table 1 below.) The research also shows that
the sector can do more to be easier to do business with and reduce the effort
for customers engaging with firms.
Table 1: Consumer-reported satisfaction in the insurance sector
|
Insurance
|
UK
all-sector average |
Retail non-food
(the best performing sector) |
UK Customer Satisfaction Index Scorea |
77.0 |
78.7 |
82.0 |
Quality of Information/advice |
7.9 |
7.7 |
8.0 |
Being kept informed |
7.7 |
7.5 |
8.1
|
Open and transparent |
7.7 |
7.6 |
8.0
|
Customer Effortb |
4.5 |
4.5 |
3.9
|
Ease of doing business |
8.0 |
7.8 |
8.4
|
Price/cost |
7.7 |
7.4 |
8.2
|
How the FCA should
achieve better information for consumers at renewal
Given our research findings, we think there is
great value in the principle of the consultation proposals and we welcome the
research the FCA has done on this and the suggestions made. However, we do not
think imposing this very specific requirement via a rule is an appropriate course
of action. The current rules are sufficient and imposing the proposed
obligations is too prescriptive and will restrict the development of a wider
business-customer relationship. There is a need to encourage wider transparency
across a range of contact points. We believe that the FCA should
provide further non-handbook guidance around information displayed on renewal
notices.
We think that the existing obligations under
Principle 6 and 7[4] and under information rule
ICOBS 6.1.5[5] are sufficient regulatory requirements
on firms in relation to information provision. In particular, we think that in
order to be providing ‘appropriate information’ in a ‘comprehensible form’ as
required by ICOBS 6.1.5 firms should be providing clear comparison information
about their renewal premium. This could, however, be made clearer through further
non-statutory guidance and further action only considered after the FCA has
monitored the impact of highlighting these issues.
In addition, we think that the particular
proposal the FCA settled on is a very prescriptive considering the wider policy
objective identified. The FCA should revisit some of the options it dismissed
before the trail stage as some of these, and possibly options not considered,
may have value (see below for a discussion of the options). This is another
reason why further non-handbook guidance would be most appropriate. The FCA can
lay out a series of options and its research and allow firms to innovate on the
best ways to communicate with customers to achieve their regulatory
obligations. We think this would be preferable to prescriptive regulation.
What better information
for consumers looks like
We encourage the FCA to look at practice
outside the sector when considering issues around service to customers. We note
that the FCA considered alternative proposals but dismissed them before the
trial on the grounds that they may be ‘confusing for consumers, introduce
practical implementation difficulties and higher costs for firms and give rise
to potential unintended consequences.’
Whilst we welcome the caution in imposing
requirements that are not customer-friendly or would create unnecessarily
burdensome regulation, we are concerned that other options may have been
dismissed too early and that experience by other sector regulators may have
provided evidence of their usefulness. For example, the options of requiring
the disclosure of ‘new business equivalent premiums or the lowest premium over
time’ we not pursued. These options are similar, however, to the requirements
on suppliers in the energy sector to inform customers on their bills if they
could save money by switching to another tariff.
There are also other possibilities not
considered. For example, it could be useful for those consumers who had renewed
their premium multiple times if the price of the premium the consumer had when
they first bought the product is disclosed (please see our response to Question
4 below).
The potential usefulness of these other options
demonstrates the problem with the prescriptive approach taken by the FCA. By
specifying the form further information takes a new rule will mean firms do not
seek out the best way to provide useful, appropriate and comprehensible
information to customers to enable them to make the best decision. A new rule could
create a compliance driven or tick box approach to providing information to
customers rather than genuine engagement in customer needs.
The FCA should consider revisiting some of the
options it dismissed and all sector regulators should work together to share
research, learning and best practice particularly on an important cross-cutting
issues like service to customers. We acknowledge that there may be
sector-specific considerations but the expectations of customers are increasingly
consistent across sectors. Consumers do not restrict their thinking to a single
sector when considering service issues and could reasonably wonder why they receive
certain information about a product in one sector but not in other sectors.
What businesses should do
Businesses should be encouraged to provide appropriate
and comprehensible information to consumers not only because it is good for
consumers but because it will benefit firms by improving their relationship
with their customers and, therefore, ultimately their business performance.
It is important that firms are clear and
straightforward in their communication with customers as this is an essential
part of building a relationship of trust. Research by The Institute of Customer
Service demonstrates that customer satisfaction, loyalty, recommendation and
trust are highly correlated. For example, of customers who score an
organisation between 8 and 9 out of 10 for customer satisfaction, 44% give that
organisation a 9 or 10 out 10 in terms of trust. This rises to 90% if the
customer scores them between 9 and 10 out of 10 for customer satisfaction. The
implication is that the highest levels of trust and satisfaction are highly
related and that these are then related to high levels of customer loyalty and
recommendation.[6]
In a service economy increasingly built around
relationships between businesses and consumers, rather than just transactions,
this is an important insight. It demonstrates that firms should ensure customer
service is an integral part of their business strategies.
The focus for the FCA in these proposals is
ensuring that consumers are receiving a competitive product in terms of price. This
is important but our research shows that whilst 14% of customers seek the
cheapest possible deals and will sacrifice levels of service to achieve them, 62%
of customers want a balance of price and service with at least a minimum
threshold standard of service. A further 23% indicate a preference for
excellent service, even if it costs more.[7] This demonstrates that there wider advantages to improving information to
consumers because many will respond positively to the improvement in the
service they receive.
These insights, on consumer attitudes to both trust
and price, highlight that very specific changes like the ones contained in the
FCA proposals will not be enough to ensure better outcomes for consumers. Firms
themselves need to think more broadly about how they communicate with their
customers. They should ensure customer service is a central part of their
corporate strategies as this is the only way to ensure proper service for
consumers and drive long term sustained business performance.
The FCA can support this by providing research
findings and encouraging shared learning between sectors as part of
non-handbook guidance.
Q2: Do you agree with our proposal that the premium displayed should be the premium the consumer started the year with, but that firms can include other information, such as mid-term adjustments?
No. As noted above in response to Question 1
we do not think a rule should be created requiring firms to display previous
premiums. We do think that this practice, or something similar, is one that
firms should adopt and that non-handbook guidance could include the
recommendation that a premium the consumer started the year with should be
displayed.
Q3: Do you agree with our proposal that firms
should also provide information to consumers to check the proposed policy
continues to meet their needs and to shop around?
No. As noted above in response to Question 1
we do not think a rule should be created requiring firms to display previous
premiums. However, we do think that this is a practice that firms should adopt
and that non-handbook guidance could include the recommendation firms provide a
statement encouraging consumers to check whether the cover offered still meets
their needs.
Q4: Do you have any comments about this additional disclosure?
Do you have any suggestions for the proposed message to consumers?
As noted above in response to Question 1 we do
not think a rule should be created requiring firms to display previous
premiums.
We agree that the proposed message is a useful
way of highlighting to consumers the length of time they have remained with a
provider and that this could be included in non-handbook guidance. However, we
note the proposed message does not necessarily mean the consumer will appreciate
the cumulative impact of price increases over the preceding five renewals. We
suggest a more appropriate mechanism would be to suggest not only the inclusion
of the premium the consumer started the year with but the premium the consumer
had when they first bought the product. We think this would provide a greater
impetus to the consumer to consider other products.
Q5: Do you have any comments on how the disclosure should
be presented to the customer?
As noted above in response to Question 1 we do
not think a rule should be created requiring firms to display previous
premiums.
We do think that non-handbook guidance could
make recommendations as to where any further information about previous
premiums is displayed. Any disclosure needs to be prominent in order for it to
be useful. However, rather than considering on which page the disclosure is positioned,
its position relative to the renewal quote is what the most significant
consideration in allowing for comparison. We think that non-handbook guidance could
suggest the previous premium (or other information) should be displayed immediately
adjacent to, under or above the renewal quote.
Q6: Do you agree with the proposal to apply the
measure to all situations where a general insurance policy is renewed with a
retail consumer with the exception of policies with a term of less than a year?
No. As noted above in response to Question 1
we do not think a rule should be created requiring firms to display previous
premiums.
We do think that non-handbook guidance could
make the recommendation that previous premiums only need to be displayed for
polices of one year or more.
Q7: Do you have any comments about our proposed implementation
of 1 January 2017 for the disclosure measures?
As noted above in response to Question 1 we do
not think a rule should be created requiring firms to display previous
premiums. We believe that non-handbook
guidance should be implemented as soon as reasonably possible.
Q8: Do you have any comments on the proposed
non-Handbook guidance?
As noted throughout our response, we think
that all of the proposed information provision by firms should be outlined in
non-handbook guidance. This is the best way to achieve proper engagement from
firms about communication with customers.
However, we welcome the draft guidance
produced in the consultation as far as it goes.
Q9: Do you have any comments on our cost benefit
analysis (CBA)? (Note: see Annex 2)
No.
[1]
The Institute of Customer Service, UK
Customer Satisfaction Index - The state of customer satisfaction in the UK
(January 2016), p36-37,42-43
[2]
The Institute of Customer Service, UK
Customer Satisfaction Index - Insurance Sector Results (January 2016), p12
[3]
The Institute of Customer Service, UK
Customer Satisfaction Index - Insurance Sector Results (January 2016), p8-9
[4]
Financial Conduct Authority, Principles
for Businesses, (2014). PRIN 2.1 - Principle
6 Customers’ interests and Principle
7 Communications with clients.
[5]
Financial Conduct Authority, Insurance: Conduct
of Business sourcebook, (2008). ICOBS 6.1.5.
[6]
The Institute of Customer Service, UK Customer Satisfaction Index - The state
of customer satisfaction in the UK (January 2016), p23
[7]
UK Customer Satisfaction Index - The
state of customer satisfaction in the UK - January 2015. The Institute of
Customer Service, (January 2015). Summary Report, p10