FCA reshapes guidance for insurance customers in financial distress

The FCA has launched a consultation (CP23/1) to replace guidance for non-investment insurance customers in Covid-related financial difficulty, with expanded guidance for customers in financial difficulty more generally. The consultation follows on the heels of last September's Dear CEO letter, which set out expectations for firms in relation to the cost of living crisis. 

Existing guidance for non-investment insurance and premium finance customers was published in late 2020 - in direct response to challenges caused by the pandemic. However, as the cost-of-living crisis continues unabated - the FCA's own 2022 Financial Lives Survey found the number of adults with "low financial resilience" had leapt to 12.9 million - the regulator has decided it is necessary to pivot and extend its guidance for firms. 

In addition to the guidance being made applicable to customers irrespective of the reason for being in financial difficulty, firms must think about what actions they can take to provide effective support and, ultimately, meet their obligations under ICOBS 2.5 and the incoming Consumer Principle (not forgetting the underlying the Consumer Duty rules). The FCA's non-exhaustive list of possible actions include:

• reassessing the customer's risk profile
• considering if other insurance products may provide requisite cover at a more affordable price
• adjusting cover to reflect the customer's changing financial circumstances
• working with customers to avoid the nuclear option of cancelling important cover
• where a policy is adjusted or cancelled, looking at whether it is appropriate to push for the payment of related fees and charges

The Consumer Duty looms large over these "actions". In particular, the Duty will require firms to have processes in place to avoid causing foreseeable harm to customers - including those in financial distress.

Separately, the FCA proposes that firms should take "reasonable steps" to make customers aware of - and help them understand - available support. Under these signposting expectations, firms should also ensure customers are readily available to contact them. 

The consultation focuses on non-investment insurance; however, premium finance has not been forgotten. The FCA intends to consider the premium finance aspects of the Covid guidance separately.

The consultation will run to 11 March. The FCA is then expected to publish a final policy statement in Q2, with the revised guidance introduced on 31 July 2023. The guidance is likely to be absorbed into ICOBS 2.