The business case for Consumer Duty compliance


Ian Hughes, CEO of Consumer Intelligence, made the business case for putting customers at the heart of everything an organisation does during his presentation at ILC’s inaugural Risk and Compliance event, which took place at etc Venues in Manchester on 15 November.

Themed, ‘Consumers – more than just a duty,’ the event, which was sponsored by Albany Group, First Central, Gallagher Bassett and Padda Consulting, highlighted how insurers and suppliers can work together to improve the customer journey and at the same time meet stricter legislative rules.

Evolution

During his session, ‘The Evolution of Consumer Duty,’ Ian brought the issue back to people to emphasise the personal aspect of good service and fair value.

He said, “In 1962 John F Kennedy said it was an age of change and challenge, knowledge and ignorance, and that the greater our knowledge, the greater our ignorance. He was talking about putting a man on the moon, but what he said then is still true today; we have great knowledge and great ignorance.”

Ian explained how lessons around delivering fair outcomes have not been learned, pointing to the case of Susan Plevin, who took out a loan from Paragon Financial Services and was disgusted by how much commission they got paid for payment protection insurance. She took them to court, and eventually the Supreme Court ruled in her favour, establishing the Plevin Ruling.

“That proved that you can’t rip off customers,” Ian said. “But we haven’t learned our lesson.”

Ian then cited Hamish Ogston, who introduced insurance against losing your bank card, only to be fined £10.5m by the FCA for selling customers products they didn’t need.

Scope

Explaining the scope of current legislation and obligation, Ian then pointed to the case of Karen Beaumont, a resident who discovered that Providence Wharf Property Management Association had been paid a commission of £1.6m by an insurance company to ensure insurance claims from their tenants went through them.

Although Karen wasn’t a direct customer of the insurance company, the practice impacted her costs and, again, the ruling went in her favour.

Ian explained, “Most people in the supply chain think Consumer Duty doesn’t affect them. They think it’s only about insurers. But what this shows us is that it’s entirely about the supply chain. Every single thing that has an impact on what the consumer pays is part of Consumer Duty.”

Warning

While Consumer Duty is still in its infancy and has yet to really bite companies that aren’t complying, Ian believes it is just a matter of time.

In a recent open letter to CEOs of UK pension providers and investment firms, Lucy Castledine of the FCA said, “Too many firms are not considering all the revenue streams from consumers across all aspects of the value chain. We expect your firm to change these practices if they exist and to regularly assess the overall cost and value for money of your products and services and make changes where you think value is poor.”

This, Ian insisted, applies to insurers too, and he urged them to consider every single thing within the value chain that impacts pricing before the FCA comes calling.

Short-term

For some, the immediate cost implications are a dissuading factor, but Ian believes this is short-termism and ignores the benefits to businesses in terms of reputation, customer satisfaction, and profitability.

He revealed how Consumer Intelligence had worked with one customer who had been investigated by the FCA for over-charging on online transactional fees. By reducing fees immediately, which cost the company about £20m in fees in a three-month period, the company not only avoided FCA sanctions but also improved revenues by upwards of £100m a year as customers attracted by better terms flocked to the company.

Ian said, “The money that can be made in the next quarter is often blinding and bewildering, but if you do Consumer Duty right, you will make more money, without a shadow of a doubt.”

He concluded, “George Mallory once said he wanted to climb Mount Everest because it is there. Well, Consumer Duty is there, the ever-evolving needs and expectations of customers are there, and the possibility to build confidence is there. With every step we take towards better outcomes we move a little bit further, a little bit higher, and deliver a little bit more for our customers and for our shareholders.”

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