RSA & THE FCA THEMATIC REVIEW
CUSTOMER EXPECTATIONS & TRADING PRACTICES
Earlier this year the Financial Conduct Authority (FCA) released a report following their review of the conflicts of interest and remuneration of intermediaries operating in the SME market. The review, surveying the views of 1000 SME customers and a number of insurers and brokers, concluded inherent conflicts of interest are not being managed in many firms and a gap exists between SME customer expectations and actual trading practices. These outcomes provide both significant challenges and also opportunities for brokers to differentiate and truly align their SME business to their customers.
Broker business models have adapted to changing markets, in some cases increasing in complexity as income streams are developed in addition to fees and commission earned from acting as an agent of the customer. Contingent commissions, over riders, income from add-ons and finance are common place and may give rise to a greater risk of conflicts of interest. A situation worsened if controls and management information are out of synch with changes
in the broker’s business, a changing regulatory environment and most importantly, a shift in the way customers expect to be treated.
Central to the report are SME customer expectations where it was noted a gap has developed between what customers’ expect and what may be happening when they purchase or renew their insurance.
It is fair to say their insurance needs may often be more complex than those of a retail customer, which adds weight to the need for good advice. These customers are expecting to receive advice and believe the broker is acting as their agent; the question is what happens if this is not the case? Some thought provoking facts and figures in the report:
- 82 % expect their broker to obtain more than two quotations;
- 61% expect their broker to obtain at least four quotations;
- Customers perceive the broker is acting as their agent and
- Where ‘disclosure’ is used to inform a customer that the broker may be acting as an agent of another party, it’s likely that the customer does not understand what this really means, and that they miss-understand the role of their broker. e.g. when using a solus scheme or accessing an in-house MGA?
Insurers must partner with brokers who are aligned to their values and critically can demonstrate how the products they provide are designed to meet the needs of the customers, and placement decisions are explained to the customer in a way which they understand. At RSA we use industry insight and data to develop the most suitable products and services and we track the feedback of brokers and customers to ensure we are constantly evolving the service we offer. When brokers are selecting which insurers to work with, consideration should be given to the security of markets, fairness of pricing and ability to meet the needs of customers.
It is not the role of an insurer to regulate broker activity nor micro manage their processes. It is incumbent on both parties to ensure satisfying SME customer needs are at the heart of the way business is conducted. This is particularly important where deals or arrangements with preferred partners are in place. A good audit trail which shows the robust tender approach taken to select partners and the reasons for the levels of remuneration is a must do. Similarly data showing how insurer products are being sold and that conflicts of interest are being managed and positive customer outcomes are being delivered should form part of the regular reviews between insurers and brokers.
Technology can enable solutions to some of these challenges, providing data to show where your SME cases are placed both at new business stage and at renewal, tracking the number of customer quotes provided. Using e-trading, particularly integrated solutions, means you can take the time to discuss customer’s requirements whilst letting the technology ‘take the strain’ and deliver prices from your chosen markets. Over the last eighteen months RSA have made significant investments in this area, refreshing and updating our existing products, launching new products and enhancing our services to enabling brokers to maximize the benefits of electronic trading through their software house.
The FCA view is clear, all parties must ensure conflicts of interests are understood and managed and the SME customer is placed at the heart of their SME offering.