Another deadline for the FCA’s Consumer Duty regulations is coming up in July, and for many insurers, it’ll be more important than the first.
The first deadline was more of a checkbox exercise. It gave insurers room to manoeuvre, saying, “Yes, we can generally prove we’re not being unfair to our customers,” and was much easier to comply with.
Now, things are getting more difficult, and regulators are turning up the heat on financial service institutions.
What’s different about this deadline?
The July deadline will require businesses to be more specific in their compliance… in a very, very real way.
For one, firms will have to have evidence of their progress documented in their annual board report by July 31st. In other words, now that you’ve had time to digest what the regulations and expectations will be, you’ve got to prove how you’re putting pen to paper and doing something about it. It’s no longer a question of how you feel, but what exactly you’re improving in your customer relations.
(For example, if there were cases where you weren’t communicating with a customer for years at a time, is that really treating them fairly? No. So… what systems or actions are you putting in place to remedy that?)
Financial institutions aren’t expected to have everything ironed out by this date, but the idea is that they’ll start making improvements, and enter a cycle of continual improvement and learning.
Why this deadline is so much more than just a regulatory check box:
The whole idea, of course, is to make the world of financial services more equitable and easy to navigate and manage for customers. Regulators can clearly see that the technology exists to do this, and that it’s permeating almost every other consumer-facing industry out there thanks to big tech, so they’re calling on financial services to step up to the plate.
Unfortunately, what they don’t realise is how much work it could (potentially) take to integrate all that modern technology on top of legacy systems that’ve been humming along for decades.
An equitable and easy-to-navigate consumer experience sounds ideal for banking and financial services, for sure. The reality, however, is that the functionality just doesn’t exist within old systems to make it happen.
When you take a modern-looking, future-focused approach to insurance overall (and not just in the context of FCA requirements), you start to see just how much customer-centric technology is necessary.
Customer-Centric Setups & What to Look For
The easy way to explain big tech’s personalisation at scale is that they set up their operations around their customers — not around their products.
So many times, financial service firms and insurance companies have this reversed.
In the past, this was just the way insurance businesses were run. “Digitising” simply meant making the manual operations or aspects of customer experiences digital, rather than re-imagining how to do things in a fundamentally different way with the new technology available.
Digitally-native big tech companies, though, have only ever operated online, and thus have this setup ingrained in them. This gives them two key competitive advantages:
- Deep knowledge of their customer base
- Extensive control over customer files, and the ability to act on them
Thanks to these two advantages, big tech companies know exactly who their customers are, what behavior led them to become customers, and what they’re likely to buy next. This insight creates opportunities to build deep, lasting relationships and significant brand loyalty.
Insurance companies can have a setup like this too, if they know what to look for.
Rather than putting a digital plaster over a product-centric wound, it’s best to start fresh with something that’s actually customer centric. Instead of something that’ll require constant, complex updates to just barely service your customers, you’ll want something that’s agile and ready to match new market expectations.
Not only that, but once you have this customer-centric setup, all the data you have on a customer will automatically become useful in serving your customers much better. Your information is no longer siloed and obstructed from making a customer’s experience more cohesive and complete. Instead, every piece of data can be used to offer better prices, suggest more relevant coverage levels, or suggest different types of policies entirely if they’d be better for a person’s financial situation.
When that happens, you can have the kind of customer service experiences people love… not to mention complying with the Consumer Duty regulations with flying colors.
Want to see what to look for in a core system to help you treat the new Consumer Duty regulations like the massive opportunity they are, instead of like just another annoying item on the to-do list?
Check out our guide on nitpicking core systems for the best technology here: Nitpick Core Systems Like an Analyst.
Or book a call with EIS.
P.S. Could this Mean a Fairness Index?
A sort of “post-script” thought, if you will, but this is an idea we find fascinating:
One of the possible outcomes from these consumer duty regulations, and why they’re so important for insurers to treat as an opportunity rather than a “do enough to tick the boxes” requirement, is the potential of a fairness index.
This is speculation on our part, but it wouldn’t be too far-fetched to imagine that, for example, we’d be able to see how our banks and insurers stack up against other banks and insurers in terms of customer fairness. If one institution ranks low, or can’t point to the technical, tangible things that make them one of the fairer institutions on the market, it’ll be a huge threat to their customer churn rate over time.
Could we see customers buying on fairness in the future? What do you think?
