Enhancing Consumer Protections: FCA publishes finalised insurance guidance on supporting customers in financial difficulty

Written by Pritpal Virdee

On 3 July 2023, the FCA published a policy statement (PS23/9) containing its finalised guidance for the insurance industry on supporting customers in financial difficulty. The guidance will come into force on 31 July 2023, immediately after the commencement of the Consumer Duty.

The policy statement follows the FCA’s consultation earlier this year in January 2023 (CP23/1) on widening the scope of its existing insurance and premium finance guidance for supporting customers in financial difficulty due to Covid-19 to apply to all customers in financial difficulty, regardless of the reason for being so (read our blog on this here).

Building on the FCA customers’ best interest rule in ICOBS 2.5.-1 R and the Consumer Duty requirements, the finalised guidance is intended to help provide better and more consistent protection for customers who have non-investment insurance policies (including general insurance and pure protection policies) and are in financial difficulty.

In addition to the protections afforded to customers, the guidance also gives firms more clarity about the FCA’s expectations of them in supporting their customers which will be useful for firms to refer to when the Consumer Duty comes into force next month.

In response to the feedback on the CP, the FCA has made the following clarifications and amendments:

• Clarifying that the guidance does not set expectations in relation to contracts of large risks distributed to commercial customers.
• Including a provision setting out that the options available to, and the level of support provided by, firms to achieve the intended outcomes under the guidance will vary. This will depend on the nature of the firm’s relationship with the customer, the firm’s role in the distribution chain, the type and characteristics of the customer and type of product. This is intended to ensure that support is provided where it is needed most without creating an undue burden on firms.
• Including a provision setting out that firms should consider whether, in the particular circumstances, it would be appropriate to refer the customer to another firm in the distribution chain who is in a better position to support the customer.

The text of the finalised guidance is set out in Appendix 1 to PS23/9, in the FCA's Insurance: Conduct of Business Sourcebook (Customers in Financial Difficulty) Instrument 2023 (FSA 2023/23) and is presented as a new chapter in ICOBS (ICOBS 2.7 Customers in financial difficulty).