UK regulator the Financial Conduct Authority has issued its final guidance to insurers and intermediaries on how to deal with customers in financial distress.
The FCA has warned that as increasing numbers of businesses and individuals find their circumstances changed by the impact of the COVID-19 pandemic they expect insurers to take action to help.
It said: “There are a number of circumstances in which firms could consider actions to support customers who may be in financial distress due to coronavirus. In particular we want to see firms focus on where a customer, contacts the firm because they are having difficulty making repayments, want to reduce cover (whether having paid in-full or on a monthly basis) or have asked about their insurance cover in the light of coronavirus. They have missed payments during the crisis period, indicating that they may be suffering financial distress, even where they have not contacted the firm.”
It has outlined stapes it believes insurers need to consider if they are contacted by a policyholder, but added they also need to communicate to their customers that support is available should they be struggling.
The FCA said the options open to insurers include the ability to reassess a customer’s risk profile.
“It might be that some customers’ risk profiles have changed because of coronavirus,” it said. “For example, some motor insurance customers might not be using their vehicle at all or no longer be using it for business purposes, and customers could potentially be offered materially lower premiums.”
Insurers should also consider whether there are other products the firm can offer which would better meet the customer’s needs and revising the cover accordingly.
“A customer’s needs may have changed because of coronavirus. For example, a motor insurance customer might no longer need associated add-on cover such as legal expense insurance, key cover or other products, or could be moved from fully comprehensive cover to third party fire and theft. There may also be businesses which do not need certain covers for a period.”
Payment deferrals should also be considered, and where customers in these circumstances decide it is in their interest to cancel their policy, “without encouragement or suggestion from their provider”, firms should waive any cancellation fees where the firm needs to do so to ensure it is treating its customers fairly.
“Firms should also consider fair treatment of customers when assessing new premiums for customers who cancel and then return to the insure,” it added.
However the regulator warned that while these actions may see the cists of premiums reduced such a reduction would need to be passed onto the customer.
“These actions could result in a reduction in the monthly premium for customers paying by instalments,” it said. “For customers who have paid up front, this could result in a partial refund of the premium. We generally do not expect firms to increase premiums as a result of any reassessment and this is very unlikely to meet our expectations
“In carrying out the above assessments, firms should be mindful of the objective of this guidance to ensure that customers continue to have insurance that meets their demands and needs and mitigate the risks of underinsurance. We note that customers are likely to still need some level of cover for many insurance lines and reducing or suspending a customer’s cover may not be appropriate for some products, e.g. pure protection contracts. This is particularly the case where a customer seeking to take out new cover later on may need to have their health re-assessed and potentially face more expensive premiums.”
The Regulator issued its initial guidance earlier this year and undertook a consultation period which ended two weeks ago. The new guidance came into effect yesterday.