Financial services companies have lived with TCF for a while. Alistair Sclare considers whether it has been worth the pain of implementation.
The principle of Treating Customers Fairly (TCF) has been part of the regulatory regime for a while now and is slowly becoming embedded into industry practice. Whether broker or insurer, if TCF is not yet part of day to day routine then there is a grave danger of really struggling when the merry men from the FSA come calling.
Most in the insurance sector are well advanced and although some are probably doing more than others it is sometimes good to sit back, remove the “but it’s compliance” and “we have to do this” elements from the equation and ask ourselves whether all the work has been good for us and whether our customers are better off with the rigours and bureaucracy that surrounds the FSA’s initiative.
Many people’s first reaction to TCF was to feel slightly affronted at the suggestion that the company was not treating customers fairly. On reflection no one actually said that, but that is how it felt when it was first put on the table. Maybe it is just a defensive nature instilled after years working around one class of insurance or another, or perhaps the recollection of a particular complaint, or an Ombudsman case disagreed with. Whatever the reason, the TCF initiative initially did not feel that it was treating us very fairly. However, a bit like dealing with audit reports, you learn that none of it is personal and any perceived criticism does not necessarily have your name attached to it.
Desired Outcomes
When considering the progress made under the TCF regime it is probably best to start with the desired outcomes as defined by the FSA, a simple articulation of what they wish to achieve. And when you do this it becomes difficult to disagree with their intent:
- Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
- Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
- Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
- Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
- Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
- Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
Can anyone really argue with the idea that if someone goes to an FSA regulated insurance business that they should be dealing with a company that operates in a way that seeks to protect its clients?
Or if a regulated company gives advice, that advice should be suitable and consider the circumstances of those they are advising? Or indeed that the products that are being sold are actually designed in a way that means they are appropriate to the circumstances of the customers they are being sold to? The fact is that insurance is in many respects complicated for those not familiar with it. Surely it is reasonable that we sell products to people that they need and that those that we do sell provide all the protection that is required?
Of course, all of us can probably think of examples of where common sense appears to have gone out the window. But major compliance incidents are few and far between and most of us can convince ourselves that we, and the part of industry we represent, were not involved anyway. So with this in mind has TCF done anything for us and our customers, or has it just been a costly administrative burden we could have done without?
Taking Action
Is it anything other than sound business practice to have a defined and documented product development process that has at its heart the requirement that products are developed with a view to ensuring that there is a genuine need – particularly if to achieve this we canvass the views of our potential customers?
What of the technical terminology that our industry uses fairly routinely in our literature? How many of us can say genuinely that we had a close look at everything in our document wordings and then reached a view that no changes were required at all?
At Groupama Healthcare we decided to move policies to plain English. This was not the most popular decision with our underwriters and claims handlers, and it has not been without its challenges, but the revised wording will be better and clearer after the re-write. There will also be fewer disputes about ‘underwriter’s intentions’ and this should make things far simpler for all concerned.
There will be a wide variety of views about whether we are all now overwhelmed by paperwork in trying to demonstrate the necessary evidence for compliance. Suffice to say that this is a critical area of customer interaction. We are the experts and our customers often have limited knowledge, so how this interface works will be at the very heart of determining whether we treat a customer fairly or not.
Then there is the issue of complaints handling. How many employees now understand better how to recognise and manage complaints, who might not have done so before TCF and how many protracted disputes have been avoided as a result of this?
In Conclusion
From all this we might assume on balance that TCF is a pretty good thing. Well ‘yes and no’. The basic principles are sound but there are reservations that at a detailed operational level it is really what we need.
There are substantial costs and time spent across the industry making the regulatory regime happen and then enforcing its many principles. By the middle of this year the FSA will have recruited 280 extra staff over 18 months while an estimate of the cost of implementing the regulatory regime in 2009/10 alone is more than £400 million, an increase of over 20% over the previous period.
Is the output really appreciated by those that it seeks to protect or do they value or understand it? If they were fully aware of just how much it all costs, would they regard it as money well spent? I’m not so sure.
Yet, if so many of the things covered by TCF are just good business practice and the elements that protect the customer are so obvious, why were we not already doing them?
It would be great to conclude that the TCF initiative was not needed, we would certainly be happier if we disagreed more with the need for such a heavyweight regulatory initiative. But in reality we must all accept it, influence it, learn from it and then implement it to demonstrate that we can not only operate our industry better – but also in a way that consistently meets or exceeds the real needs of the customers we all serve.
Alistair Sclare is healthcare director at Groupama Healthcare.
