FCA finalises new guidance for insurers on supporting customers in financial difficulty

The FCA has finalised new insurance guidance for supporting customers in financial difficulty (PS23/9). The guidance replaces and expands on previous guidance issued in response to Covid-19 in October 2020. 

The guidance looks to provide better and more consistent protection for non-investment insurance customers. It will form part of the FCA's Insurance Conduct of Business Sourcebook (as a new ICOBS 2.7), and come into effect on 31 July. 

In terms of the substance, the guidance underlines that where a firm identifies a customer in financial difficulty, it should ensure the customer:

• is given outcomes-focused support (that reduces the impact of financial difficulty; enables the customer to retain an appropriate level of cover; and reduce, as far as practically possible, the risk of losing important cover.
• has an appropriate level of information about options available to them, in good time and in understandable format to enable informed decision-making.

Elsewhere, and broadly in line with the consultation paper (see our previous post), firms will be expected to consider what actions they can take to provide effective support and - ultimately - meet their obligations under ICOBS 2.5 (the customer's best interest rule) and Principle 12 (the incoming Consumer Duty). Examples of actions in this context include:

• adjusting cover to reflect the customer's changing financial circumstances
• working with customers to avoid them needing to cancel important cover
• looking at whether other insurance products may provide requisite cover at a more affordable price
• reassessing the customer's risk profile
• considering if it is appropriate to require the customer to pay all contractual fees and charges
• exploring the possibility of referring the customer to another firm in the distribution chain who may be better positioned to assist. 

The last of these example actions is a new addition from the consultation paper. Otherwise, there are a handful of other small changes from the consultation paper - in particular, the FCA has clarified that the guidance does not set expectations for contracts of large risk distributed to commercial clients.