Treating vulnerable customers fairly

Brokers will be familiar with their regulatory obligation to treat customers fairly, but what additional steps do you need to consider where that customer is potentially a vulnerable person? In its February 2015 report on the topic, the FCA identified potentially vulnerable customers as those with:

• Low literacy, numeracy and financial capability 
• Physical disability 
• Severe or long-term illness 
• Mental health problems 
• Changes in circumstance (such as job loss, bereavement or divorce) 
• Lack of English language skills

Or

• The “older old”. These are older people suffering with cognitive, sensory or dexterity impairments, the onset of ill health or those who are not comfortable with new technology. There is no set age at which customers fall into this category but the over 80’s are highlighted as an example.

Examples of vulnerability in the insurance broking context could include: 

• Reduced understanding of alternative insurance providers
• Perceived barriers to leaving a current insurer 
• Reduced access to the market or ability to shop around 
• Reduced ability to compare products 
• Heightened trust in the product/premium offered by a current insurer or broker

In January 2016, in response to the FCA’s report, the ABI and BIBA called for FCA regulation and launched a voluntary Code of Good Practice for the support of potentially vulnerable motor and household customers at renewal. Here is a reminder of the Code’s key features:

Brokers (and insurers) should: 

• Ensure staff are adequately trained to recognise and understand potentially vulnerable customers at renewal 
• Implement processes to ensure that they are satisfied that products and prices identified for the potentially vulnerable are reasonable 
• Take account of the characteristics associated with vulnerability in making decisions on pricing and promotion 
• Periodically review customers on legacy products and take proactive steps to ensure products continue to meet the needs of potentially vulnerable customers

In renewal communications with potentially vulnerable customers brokers (and insurers) should: 

• Ensure they obtain sufficient information to know if the current policy and renewal offer meets the customer’s ongoing needs. 
• Consider whether additional communication by letter, email, phone or text may be appropriate and ensure communication always sets out the customer’s renewal options. 
• Consider whether a “more inclusive renewal offering process” or “specialised customer support” is available to address risk factors. 
• Not explicitly encourage the customer to do nothing at renewal as this may discourage engagement in renewal discussion. 
• Explain to the customer that factors affecting renewal may have changed since the last renewal and that the customer can contact their insurer to satisfy themselves that the product remains suitable.

The ABI and BIBA will produce a report at some point after January 2017 to assess the influence of the Code and will make recommendations by November 2018 as to whether the Code should continue in current or amended form. In our view, it would be useful from brokers’ point of view for more practical guidance, for instance as to what a “more inclusive renewal offering process” would involve.

The Code is voluntary and as such there is no sanction for non-compliance but brokers should be aware that a failure to adhere to the Code could be relied on by a customer complaining to the Financial Ombudsman Service or in a claim for professional negligence. Paul Evans, ABI Chairman when the Code was published, highlighted the need to address potential disadvantages faced by vulnerable customers in order to “build the reputation of the industry and the trust of our customers."
By adhering to the Code, brokers can ensure that they are playing their part in furthering this aim.

It might sensibly be argued that a vulnerable customer is no different to any other. As broker you are still expected to take appropriate steps to know your customer and to advise on their demands and needs. However, brokers must be able to recognise when they are dealing with vulnerable customers, and if they are, brokers will need to demonstrate that they have understood, addressed and advised about a vulnerable customer’s needs in circumstances where the customer may be unable to express themselves as clearly as other customers might.