Tag Archives: financial conduct authority

COVID: U.K. Financial Authority Response


In the U.K., separate regulatory bodies are accountable to supervise prudential matters (solvency) and consumer protection (conduct). The Financial Conduct Authority (FCA) recently took several actions with respect to consumer protection in the context of COVID-19 using different tools than those available to U.S. insurance regulators.

Resolution of Business Income Coverage Disputes

The FCA has retained a law firm to represent the interests of policyholders in a proposed “test case” to be filed in court by the FCA against representative insurers. The FCA has requested insurers, intermediaries and policyholders to submit examples of disputed policy wordings and the respective positions of the parties.

It appears the action will be commenced before the end of July and is expected to result in binding outcomes as to the interpretation of selected wordings and guidance as to the interpretation of other wordings.

At least initially, the FCA’s statements suggested this litigation would be limited to a few rarely purchased coverage options not requiring “property damage.” It is now unclear whether the scope will expand to include coverages that are only triggered in the event of property damage.

Assessment of Product Value

In the U.K., insurance companies do not typically files forms or rates with the insurance supervisor. Instead, the insurance law imposes a duty to “act honestly, fairly and professionally in accordance with the best interests of its customer” on the insurer and its key executives. That duty includes an obligation to provide products that offer a reasonable value to customers.

The FCA plans to require insurers to assess whether and how the value of their products have been affected by the COVID-19 crisis. To the extent a product is no longer delivering the expected value (e.g., the insured risk no longer exists), the insurer must take appropriate action.

Insurers have six months to complete the assessment and take appropriate action. Insurers must be able to demonstrate to the FCA how they have discharged their obligations to customers.

Assistance to Customers in Financial Difficulty

The U.K. insurance law also imposes a duty to “pay due regard to the interests” of customers and “treat them fairly.” The FCA has issued guidance applying this duty in the context of the potential of temporary financial distress resulting from COVID-19 of individual and small business customers.

The FCA obligates firms to discuss options with policyholders that reach out to the insurer for that reason or who have missed a payment, inquired about making a COVID-19 business interruption claim or have asked for a reduction in coverage.

Options may include a reduction or waiver of premium, deferral of premium payments, replacing the policy with a less expensive product or reducing coverages.

Insurers must take steps to make policyholders aware of these possible options including in their websites.


Business Income Coverage Disputes

The FCA announced on May 1, 2020, its intention to commence a court action with respect to coverage for business income loss under policies issued to small and medium-sized businesses. Specifically, the FCA plans to seek a declaration on “key contractual uncertainties.” The insurance industry supports the FCA’s initiative and is working with the FCA to define the disputed issues.

FCA’s View of Business Income Coverage

In a “Dear CEO” letter of April 15, the FCA expressed its understanding that “most policies have basic cover [that does] not cover pandemics and therefore would have no obligation to pay out in relation to the COVID-19 pandemic.”

However, the FCA expects “where it is clear that the firm has an obligation to pay out on a policy . . . it is important that claims are assessed and settled quickly.”

See also: Business Continuity During COVID-19  

Two weeks later, the FCA acknowledged coverage decisions may be more complicated:

  • “[A]t least in the majority of cases, insurers are unlikely to be obliged to pay out in relation to the coronavirus pandemic.”
  • “[F]irms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.”

FCA’s Intention to Seek Resolution

The FCA has reached out to a small number of insurers (reportedly including QBE, Axa, Zurich and Hiscox). FCA has requested from each typical policy wordings and positions on coverage under several available but typically not purchased optional coverage extensions for:

  • Non-damage denial of access
  • Public authority closures/restrictions
  • Infectious/notifiable diseases

The FCA will “put forward policyholders’ arguments to their best advantage” and has hired an external law firm to do so. On May 15, the FCA asked policyholders to submit examples of disputed wordings and their arguments for coverage.

For its part, the Association of British Insurers called the FCA’s action a “welcome step” and indicated insurers are expected to pay some £900 million in undisputed business income claims.

The FCA has expressed the view that most policies do not cover COVID-19 because they only have “basic cover for BI as a consequence of property damage.” The coverage extensions FCA initially selected for litigation cover “BI losses arising other than from property damage.”

Where Is All the Contents Insurance?

Do you think home and contents insurance is broken? Then join us for our Getting the House in Order series on what’s wrong and how to fix it. Part 1 takes stock of the U.K.’s protection gap and its effect on different demographics.

I’m sure that at some point in life you’ve faced the too much stuff moment. For me, it was earlier in January, as I sought to escape the post-Christmas blues with a mini-break abroad.

Except – the drawer that once contained my passport now appeared to be home to a multitude of still-wrapped DVDs, a large hardback book, some errant Christmas socks and a pack of comedy coasters.

I located the passport in the end, several layers down. But I had to think: As a nation, we sure have a lot of household contents.

I began trying to quantify the volume of stuff in people’s homes, starting with my own overloaded passport drawer. Then the drawers in the living room, drawers in the kitchen, drawers in my flatmates’ rooms (the mind boggles). Beyond that, the drawers in all the houses along my street. And that’s just drawers. What of the cupboards, floors and lofts? The garden sheds, shelves and trunks? In every city, town and village in the realm …

To stave off insanity – at least temporarily – I decided to do a bit of research. It turns out there are 27.2 million households in the U.K., which means that, for starters, we’re looking at:

And what about that class of possession wherein modern man delights the most: consumer electronics? The U.K. is apparently home to 41,000,000 smartphones37,600,000 laptops and 32,800,000 tablet. Now that’s a lot of expensive silicon knocking about!

Today’s contents explosion has not been fueled exclusively by our couch-potato tendencies, let me add. We are a nation of 25 million bike owners, 1.5 million golfers and 825,000 tennis players (weekly), so we’ve got a fair bit of sporting equipment, too.

These two recent trends – gadgetry and fitness – have helped to make our “contents footprint” larger than any previous generation’s. In fact, the Association of British Insurers (ABI), in its recent Britain Uncovered study, put the value of contents stashed in U.K. homes at £950,000,000,000 (that’s almost £1 trillion!). That’s £35,000 per home, on average, comfortably outstripping the average U.K. salary of £27,000.

So, we’ve established that our small island conceals a scarcely imaginable volume of household contents, which brings us to our principal concern in today’s post: Where on Earth is all the contents insurance?

See also: Can Insurtech Rescue Insurance?  

The same Britain Uncovered study found that 28% of U.K. households had no contents insurance whatsoever. That leaves 16 million people and £266 billion of household possessions unprotected.

— £266 billion of household possessions are at risk in the U.K. —

This figure could be higher still. The ABI estimate was based on the number of uninsured households only, excluding those that are merely under-insured. Indeed, the Telegraph reckons that 6.8 million homes (25% of total households) may be under-insured, meaning that only a minority of U.K. homes have appropriate levels of cover.

This contents protection gap has different causes – and solutions – for different people. At buzzvault, we’re pioneering an approach that matches contents cover to customers’ individual needs, whatever they own (sign up for buzzvault beta here, we’d love to know what you think).

However: tech wizardry on its own never solved anyone’s problems. So it’s more important than ever that insurers truly understand their customers. To help with this, we’ve provisionally identified three demographics whose varying needs aren’t met by today’s providers. Let’s take a look.

Contents Insurance: Renters

As if only getting one shelf in the fridge weren’t bad enough already, “generation rent” miss out in more ways still.

You see, that elusive house purchase isn’t just significant as a first step on the property ladder. A purchase is a major trigger for purchasing insurance, as well. Most home contents insurance is currently sold as a bundle with buildings insurance, which is generally mandated by mortgage providers. So, while homeowners are practically forced to take out contents insurance, little impels renters to even think about it.

81% of “generation rent” lack contents insurance, at least according to the Improving Access to Household Insurance report by the Financial Inclusion Commission (FIC). That means we’re looking at a staggering 10.5 million uninsured renters. That’s more than the entire population of Sweden!

No assessment of the travails of renterdom would be complete without a cursory look at our nation’s students. Negative attitudes toward insurance are rife among this demographic. This explains why, despite the average student lugging more than £2000 of possessions along with them to start their studies, nearly half of them aren’t covered. And this, even though students are possibly God’s gift to burglars.

Many renters could afford contents insurance, and would buy it, if only the thought crossed their mind for more than a second. So there is less a product failing for insurers than a failure to package and market their product in a relevant, customer-friendly way. Indeed, it’s that adage again: Insurance is never bought, it’s always sold.

The Financial Conduct Authority (FCA) classifies two-thirds of renters as potentially vulnerable to harm due to low levels of financial capability and resilience, health issues or risk of life events creating difficulties. Contents insurance could provide a significant umbrella.

Status: At Risk

Contents Insurance: Poorest Households

Only 40% of those earning £15,000 or less each year have contents cover, compared with more than 75% for the highest incomes (according to the FIC’s Improving Access to Household Insurance). And, in an unfortunate co-occurrence, it is precisely these individuals who are most exposed to household risks — be that house fires, floods or burglaries.

Lower-income households live with 30 times the risk of arson as more affluent households. They’re also eight times more likely to be on tidal floodplains. To cap it all, socially rented housing is twice as likely to be burgled as owner-occupied properties.

These are damning stats. They tell the story of unacceptable numbers of at-risk households having to bear the cost of personal disaster on their own.

Covering total loss from savings is bad enough – worse still is the fact that many poorer households aren’t even in a position to do this. More than 7 million UK adults have less than £1000 in savings. And less than a quarter of those in social housing could replace a washing machine from savings and income alone (Citizens Advice Quids in survey).

The financial inclusion debate has so far centered on banking, payments services and affordable credit – but accessible insurance has a part to play here, too. Tackling the protection gap won’t eliminate the savings gap, but it will de-risk it.

To do this, insurers need to find ways to make lower-premium products economically viable. This will almost certainly require new distribution mechanisms to achieve scale, reduce cost and reach people regardless of their level of financial education. Tenants insurance schemes (sometimes called “Insurance with Rent”) are welcome in this regard but have had limited adoption so far.

Status: Highest Concern

See also: Why 5G Will Rock the Insurance World  

Contents Insurance: Average Homeowners

Some better news: More than 80% of those owning their home outright or with a mortgage have some form of contents cover in place (FIC: Improving the Financial Health of the Nation). However, these customers aren’t home and dry. More often than not, they have inadequate cover for the value of their contents.

What we have here is endemic under-insurance, where coverage isn’t absent but is still patchy – leaving few people with optimal protection.

When taking out insurance, people typically underestimate the value of their belongings by 40%. In the event of a total loss, this means they can recover max 60% of the value of their stuff. And many insurers operate an averages clause, whereby this percentage (representing the degree of under-insurance) is applied to all claims.

To give you a flavor: Over the past three years, 6% of people have missed a typical pay-out of £1000 from their home insurance providers because they haven’t bought the right level of cover, according to a poll of 2,000 Britons by insurance broker Swinton Group.

The main reason for under-insurance is the steady creep in home contents value. This, we estimate, grows by an average of 24% over a three-year period. While the rhythm for updating insurance policies is generally annual, we update our possessions daily, weekly and monthly.

A one-size-fits-all approach to contents insurance doesn’t just lead to poorer households tending to pay over the odds. It can also lead to wealthier households paying too little – and then being hit with the consequences, without warning, when it’s time to claim.

Topping up homeowners insurance isn’t as great a social good as providing a financial umbrella for the nation’s neediest households. However, much work for the insurance industry remains to be done here that could justifiably be called low-hanging fruit. These households are, after all, already receptive to insurance and tend to own the most stuff.

Status: Vulnerable

We will revisit all these themes in greater depth as this series progresses. Next, we’re looking at what can be done about the low adoption and engagement that insurance products have traditionally faced.

It’s a certainly a challenge to sell a product no one covets or, in the main, understands. But rather than waiting for the public to start caring, the industry should explore ways to take insurance out to its customers: one approach being to embed it into other services customers do care about.

Where Can You Find Growth (Part 2)?

We are continuing our two-part series on where leaders should focus for growth in a changing world that is full of new technology. This post builds on Part One, which covered major trends, the need for customer insight and what is required to manage your data effectively.

Our attention turns again to your customers — but this time also considering the issue of their irrational behavioral biases. How should this human trait influence your plans or focus for growth?

With irrational customers, what should you do?

With the Financial Conduct Authority (FCA) focused on behavioral economics (BE) and expecting providers to take it into account, the days of assuming customers will act rationally are numbered.

I’m sure most of you have at least heard of BE. The success of popular books on the subject — from the easy to read “Nudge” to the slightly more challenging “Thinking Fast and Slow” have ensured that there has been plenty of media coverage and social media debate on the implications and appropriateness for policy and action.

See also: How to Take a Bold Approach to Growth  

As with many academic disciplines, different experts use slightly different nomenclature to order the different irrational behavior or biases observed. However, for financial services clients, a good place to start is the list of 10 biases published by the FCA. My own experience in helping clients test communications or design marketing to take irrational biases into account suggests this list covers the bases.

Do you test your communications?

Of course, the focus of FCA regulatory action is ensuring the customers receive positive outcomes through products and services suitable for their needs. Unfortunately, some agencies offer to help businesses understand and act to protect customers from BE biases by seeking to “rubbish” traditional research or the role of customer insight teams. This is so misguided. Most successful BE projects require well-designed research, as well as behavioral analysis, data capture and database marketing skills in experimental design. In other words, it is probably your existing customer insight team that is in best place to take such work forward.

Given that most firms focus first on ensuring their communications could not be accused of manipulating biases, two biases (in particular) are worth considering:

  • Framing, salience and limited attention: Is the bias such that different decisions are made if information is presented/structured differently (as sommeliers know well).
  • Present bias: Is the present over-valued compared with the future (i.e., I would accept a smaller payout now, compared with delayed gratification with better return).

Still, other biases matter and occur from time to time. For a fuller list, see this previous post summarizing all 10 biases.


There are many different and exciting innovations happening, including the use of blockchain, robotics, virtual reality and machine learning. But, having seen those innovators who go on to thrive and those who do not, I am making the case to focus on people — not technology.

Developing a strong customer insight capability that is supported by well-managed data and is used to guide all interactions with customers is a sustainable route to growth. However, to achieve both customer loyalty and the approval of regulators, you will also need to consider irrational customers.

We are practically in a “seller beware” market, so, to truly protect your business, make sure you know (better than your competitors) how to help your customers achieve positive outcomes. Oh, and learn how to tell them what you know in their language.

See also: Does Your Culture Embrace Innovation?  

Such a human-centered-design approach to business is not easy, but it is fulfilling. Focus on understanding and serving your customer better. When you have a compelling story to tell, you will also be able to mobilize one of your biggest weapons. That, of course, is all the people who work in your business.

To modify the oft-quoted line by President Bill Clinton about what matters most: “It’s the people, stupid.”

Missed Opportunity for Customer Insight

Customer insight (CI) teams can take different forms in different businesses (partly rightly, to reflect the needs of that business). One such variation is reporting line. Some CI teams report into operations, sales, IT or even finance. However, by far the most common reporting line is into marketing.

See also: 3 Skills Needed for Customer Insight  

That makes sense to me, as over the years I have seen more and more applications for customer insight across the marketing lifecycle. Increasingly, marketing teams are realizing that use of data, analytics, research and database marketing techniques is part of their role. Sadly, these technical teams are, too often, still separated. But at least there are signs of collaboration.

Marketing Automation:

Companies and leaders also recognize different applications of insight to marketing. Some focus on early-stage roles in strategic decisions, some on proposition development and some on campaign execution or marketing measurement. Very few appear to use customer insight in all they do.

Meanwhile, one of the trends of recent years has been the adoption of marketing automation systems. In some cases, the term has almost been used to replace the infamous customer relationship management (CRM) system. But, for many businesses, it is more about bringing a structured workflow, resource management and quality controls to the work of marketing teams. Talking with consultants who specialize in helping businesses implement marketing automation systems (none appear to work straight out of the box) reveals a sadly lacking focus on customer insight.

This is such a missed opportunity. The marketing workflow needed by today’s business requires input, validation, targeting or measurement at almost every stage. But it seems that marketing automation designs are not routinely embedding customer insight deliverables into marketing processes.


It is perhaps surprising that more focus has not been put on automating routine use of insight in marketing, given the regulatory environment.

Whether you consider certain vertical markets (like the role of the Financial Conduct Authority), or the higher hurdles coming to all data uses (with the adoption of general data protection regulation, or GDPR, principles), marketers will need more evidence. Those data marketers keeping up-to-date with their professional responsibilities will realize they need to evidence suitability of their offerings, targeting of their communications and appropriate use of data.

Where’s the gap?

So, in what parts of the marketing lifecycle are marketers neglecting to use customer insight? Where are the most important gaps?

Based on my consultancy work, often helping companies design their customer insight strategy, I would identify the following common gaps:

Participation decisions:

  • Either not having a clear understanding of market segments, or not making participation (product categories or distribution channels) based on segment fit or size of appeal.

Communication design:

  • The use of insight generation has grown for product design (as per our recent series), but too few marketing teams also use that same insight generation to design their communication.

Communication testing:

  • Quite often this is left to ad hoc qualitative research, with insufficient use of techniques like eye-tracking or quantitative experimentation at concept stage.

Event triggers:

  • Identified as important to targeting in two recent research reports, from the DMA & MyCustomer/DataIQ, event triggers deserve to be more widely used in targeting marketing campaigns. For further thoughts on why you don’t just need propensity models, see previous posts on both events and propensity models.

Holistic marketing measurement:

  •  As more and more marketing directors are expected to report on their return on investment (ROI) or return on marketing expenditure (ROME), once again insight can help. Not just the traditional role of database marketing practices, in reporting incremental return against control groups, but also, increasingly, the design of holistic measurement program (converging evidence from brand tracking, econometrics and other data sources). This previous post shares some more detail on that.

Will you be insightful or ignored?

In closing, I’d encourage all customer insight leaders to get closer to those leading marketing in their businesses. Marketing will become increasingly challenging over the next 12 months. CI leaders have the potential to become trusted advisers who can support marketing directors in navigating those choppy waters.

See also: The 4 Requirements for Customer Insight  

To return to the theme of regulation. I once more advise readers to not underestimate the potential impact of the EU’s general data protection regulation (GDPR) on their businesses. Despite Brexit, every commentator seems to agree that this regulation will affect U.K. businesses. The most eye-catching element may be the scale of potential fines (as much as 4% of global annual revenue), but the changes to consent may affect marketers more. The new hurdle will be proving positive unambiguous consent. Many businesses may conclude they need to move to opt-in for all marketing content.

So, going forward, the biggest threat to marketers (those not embedding insight into their processes) may not just be losing customers. It may be losing the right to talk to them!