Insurers have been told they have to step up efforts to support their policyholders that are in financial difficulty.
UK regulator the Financial Conduct Authority (FCA) has set out a series of steps which it believes insurers should be taking to support policyholders which now find themselves struggling with the cost of cover.
These include payment holidays for up to three months with the option to extend the period if it is clear that the customer is in a situation where it is merited. They have also been urged to look at ways they can offer cheaper cover which reflects the changing risk profile under the current lockdown requirements
Sheldon Mills, Interim Executive Director of Strategy and Competition at the FCA, commented: “As with other areas of finance, we have worked quickly to draw up measures to help policyholders in financial difficulty because of coronavirus. The majority of respondents expressed support for the proposals we published at the start of May. Many firms in the insurance industry have already taken some of the actions we are suggesting here to support customers, such as premium reductions, discounts, waiving fees, and payment deferrals. The measures confirmed today will provide urgent support to those that need it.”
The measures will come into force on Monday and will be reviewed after three months when they will be revised to reflect where the country finds itself in terms of the impact of the COVID pandemic.
Under the FCA’s plans the targeted measures being implemented require firms to consider what options they can provide to customers including:
- Reassessing the risk profile of customers. This may have changed because of coronavirus and there may be scope to offer customers materially lower premiums.
- Considering whether there are other products they can offer which would better meet the customer’s needs and revise the cover accordingly. For example, a motor insurance customer might no longer need associated add on cover such as key cover or could be moved from fully comprehensive cover to third party fire and theft.
- Waiving cancellation and other fees associated with adjusting customers’ policies.
“These actions could result in a reduction in the monthly premium for customers paying by instalments or a partial refund of the premium for customers who have paid up front,” explained the FCA. “Where amendments to the insurance cover do not help alleviate the temporary payment difficulties for customers paying their premium in instalments, then the FCA expects firms to grant customers a payment deferral unless it is obviously not in the customer’s interests to do so.”
The regulator said any payment deferral should be granted for a period of between 1 and 3 months, though firms can go beyond 3 months should they wish to do so, and it is in the customer’s interests.
Under the plans customers will be able to request a payment deferral at any point during the period up to 18 August 2020 while the window for requesting a payment deferral is open.
The FCA added: “Where a payment deferral is not considered appropriate, firms should promptly offer other ways to provide temporary relief to the customer. These could potentially include (but not be limited to):
- accepting reduced repayments, or rescheduling the term
- waiving missed or late payment fees
- permitting a customer to amend their repayment date without any cost
“We also expect firms to consider reviewing any interest rates associated with instalments to determine whether they are consistent with the obligation to treat customers fairly in the light of the exceptional circumstances arising out of coronavirus.”
Insurers have been told they have to ensure that they issue clear messages and information to policyholders the different solutions available to customers and encourage them to make contact if they are experiencing temporary financial difficulties.
“Customers who are struggling to afford their insurance or premium finance payments because of the impact of coronavirus should contact their insurer or insurance broker to discuss options,” said the regulator. “It is important people don’t leave themselves uninsured and should not hesitate to contact their insurer.”
Insurers have reacted to the measurers by stating that many are already supporting policyholders and have been since the pandemic began.
“As the FCA has recognised, since the start of the pandemic, insurers have taken wide-ranging action to support customers who may be facing financial difficulty,” explains a spokesperson for the Association of British Insurers. “We have also set-up industry wide pledges in motor, home, travel, pet and business interruption insurance to assist customers during this difficult time.”