What constitutes a decent needs analysis?
When the “Treating Customers Fairly (TCF)” outcomes framework were first released in many insurance jurisdictions including the UK and South Arica, outcome four stood out the most, as it appeared to change the current status quo within our intermediated environment.
Obligations under the Financial and Intermediary Financial Services legislation
All intermediaries were and are governed by different items of legislation throughout advanced regulated areas, which obliges intermediaries to be licensed with their respective Financial Conduct Authorities (FCAs) to supervise their conduct with respect to their clients.
If intermediaries were in breach of a legislation Act, a complaint could be made to the regulator who would then investigate and make a binding decision.
The liability would be that of the intermediary, and not the insurer who appointed the intermediary, as it was and is the intermediary’s responsibility to comply with the terms of the various Acts that exist.
The insurer has its own responsibility to make sure it appoints Financial Service Providers (FSPs) who are registered and licensed, but in terms of supervision and compliance, that role has always belonged to the regulator.
Insurers to play an active role
Outcome four of TCF states that the product provider or insurer must make sure that the advice being given on their product is suitable in the circumstances. This means the insurer would need to go further than just making sure the intermediary is registered in terms.
They would need to satisfy themselves that the intermediary is suitably trained to sell the product, and competent to provide advice. They would be obliged to supervise that any fees being charged directly to the client, for specific services, are properly agreed on and disclosed to the client. They must also ensure the fairness of the fee where the insurer collects or facilitates the fee collection.
It is becoming clearer now that the regulator is expecting the insurer to play a more active role in supervising the fairness of the intermediary’s conduct. The insurer must make sure its selection of its intermediaries and distribution model looks at the impact on the customer and confirm the competence of the intermediary to sell the product.
Training will become a bigger priority, and the insurer will have to demonstrate it is taking active measures to satisfy itself that the intermediary is competent to give advice on the product it is quoting, on the insurer’s behalf. Customer complaints for poor advice and service will now also become the business of the insurer, and the insurer will want to have inside knowledge on what difficulties the customer faces on the advice and distribution side.
Join forces for the common good
One of the ways insurers are making strides in the above mentioned is to supply the intermediaries with checklists of what needs to be on the record of advice that is going to clients, as well as template disclosures. This provides the intermediary with best practice for supplying the client with the correct advice and information on the specific products.
The problem is that historically this area has always been the broker’s area of expertise, and the fact that insurers, outside of the direct space, probably have a more theoretical background at best. There are, no doubt, clashes and differences in interpretation will ensue.
Intermediaries and product providers are going to have to work together and join forces for the common good. They may have spate (what does this mean?) interests on certain issues but keeping the customer well serviced and fairly treated is not one of them. Each side will need to bring their expertise to the table and co-operate in all ways possible. In the past the relationship has been more adversarial, specifically where the intermediary fights the fight for the client, and where insurers dictate the terms of the Intermediary Agreement. Now, these differences of opinion should be set aside for the purposes of fairness and equity.
by Danny Joffe : Chairman of Klapton’s Ethics, Nominations & Remuneration Committee