The Chartered Insurance Institute’s Underwriting Faculty New Generation Group recently produced a report titled Customer Vulnerability – How well is insurance responding? The report was influenced by numerous charities, who believe the people they represent are vulnerable to unfair treatment from insurers.
Last year there was a thematic review on the treatment of financially vulnerable consumers in the mortgage market, and in 2015 the Financial Conduct Authority (FCA) issued its Occasional Paper No. 8 called Consumer vulnerability in financial services. There are plenty of indicators this is an issue we should be paying attention to. The number of scams around pension freedoms suggest dealing with vulnerability is important to our profession.
In our work of assisting new firms to obtain FCA authorisation, we regularly encounter requests from the regulator for firms to provide a vulnerable customers policy. We come across existing firms who have not addressed the issue.
Forgotten demographic
The FCA defines a vulnerable customer as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’. The regulator believes there is not always an intention to disadvantage them, but what is offered to the typical customer is not always appropriate for vulnerable customers.
Vulnerability can be temporary, sporadic or permanent in nature, so firms need to consider how to provide a flexible, tailored response, while recognising many people in vulnerable situations would not recognise themselves as such. But anyone can become vulnerable, and a combination of factors and sudden changes in circumstances are particular indicators of high risk.
Moral obligation
The FCA’s Occasional Paper on consumer vulnerability from February 2015 included a practitioners’ pack. While it appears targeted at larger organisations, there are ideas that can be applied to new model firms. The starting point is for firms to consider situations through the eyes of someone who is vulnerable: is doing the right thing at the forefront of the business?
Is every employee encouraged to empathise with vulnerability, and does the firm provide training on what that term means and how they might identify it? Larger firms may form links with charities, but firms of all sizes can speak with individuals who have experienced certain circumstances. You cannot be expected to be experts on all types of vulnerability, but being able to spot clues and respond flexibly, or refer people on, should be the aim.
People often feel awkward raising issues such as mental health, which leads to customers being distressed. Increasing understanding through discussion, role plays, and reviewing calls may be helpful to staff.
Defining the problem
Some firms have identified keywords or behaviours that may indicate vulnerability and flag these on their client files, so they can build a picture and respond appropriately. The FCA’s consumer vulnerability paper sets out a list of vulnerability factors such as low literacy, numeracy and financial capability skills, physical disability, severe or long-term illness, and mental health problems.
Talking with providers and professional bodies can give access to additional knowledge, which can help establish best practice in this area. A client’s vulnerability will not always directly affect a firm’s services, but it could affect the products that have been advised.
Being an advocate for clients in dealing with providers may be the outcome that treats clients fairly, but be careful not to stray into debt counselling if permissions have not been granted.
Good practice is to record client needs and any request for additional support, so clients do not have to repeat what may be difficult details. This should influence the way information is presented: providing information in formats such as audio, large print or braille.
This is unlikely to be practical or proportionate for many firms, but asking for assistance from product providers is one route, while involving family members or trusted friends in the discussions is another.
Vince Harvey is director of Compliance Cubed.