From 31 July the FCA’s Consumer Duty comes into force
Since the Financial Conduct Authority (FCA) announced plans to introduce a new Consumer Duty in 2022, all firms involved in the distribution chain for financial products have adjustments to consider – and the implementation date for existing products has come around quickly.
From 31 July 2023, the new rules will improve how businesses serve their customers through “higher and clearer standards of consumer protection” which the FCA expects will drive a change in culture in firms.
This will obligate product manufacturers – including GAP, Warranty, SMART Repair insurance providers such as QBE – alongside brokers, intermediaries, and dealerships to further prioritise their customers’ needs and evidence their actions to ensure they meet the new, higher standards.
After this date, it is expected that all parties in the distribution chain should have reviewed and amended their compliance policies under the new Consumer Duty, applying any recommended solutions to put consumers at the heart of their business.
While companies do not have a direct responsibility to oversee or manage other firms in their distribution chains, full oversight of those chains is expected.
What do the revisions mean for the Motor Trade?
Under the previous Consumer Duty guidelines (to 31 July 2023), dealers will have sold a range of insurance products as regulated entities, including GAP, SMART and tyre insurance. Typically, dealers have used commission-based intermediaries in the distribution chain such as Managing General Agents (MGAs) and third-party administrators to underwrite and manage the risk, alongside distributing the product, paying claims, and managing compliance regulations.
As the FCA is concerned with financial outcomes for the consumer in relation to the price and value of the product at all stages of the customer journey, dealers must now examine those customer journeys in closer detail. They will want to check whether each step offers sufficient information and value in support of a positive consumer outcome – and adjust accordingly.The FCA are keen for dealers, finance companies and motor manufacturers to take steps to reduce cost to the consumer within the distribution chain while continuing to offer fair value as they sell insurance products to their customers.
Going forwards, dealers will be looking to ensure that their intended distribution strategy for insurance products or services is fitting for the target market.
Price & Value: key considerations
The Price & Value outcome has also been highlighted by the FCA as a key focus area within the new Consumer Duty. It requires that all customers should receive fair, transparent pricing and that a reasonable relationship should be established between the price paid by a consumer and the overall benefit received.
Key considerations for dealers include:
Fair value
All parties should ensure that the product and/or service offers fair value in relation to price, now and for a foreseeable period. Fair value should be assessed at every stage of development before the sale of any products to consumers.
Fair pricing
All parties should charge reasonable prices relating to the benefit received by the customer. Consumers should not be exploited through excessive commission charges or inflated prices.
Pricing structure
All parties should check different prices quoted/charged to different consumer groups to ensure that products provide fair value for all groups, including those in vulnerable circumstances or with protected characteristics. The charging structure should be easily available for all products and evidence of fairness to each consumer group is required for any differences in prices quoted/charged.
Pricing transparency
Consumers should expect clear and understandable pricing information, which breaks down total cost to include the base price of a product alongside any additional fees or charges, discounts, promotions, or alternative options and what they are for.
Data monitoring
High quality data collection is key to achieving Consumer Duty compliance. Firms should consider all the data they have available to them as part of their fair value assessments.
Management information gathered for addressing consumer outcomes must also be included in an annual Consumer Duty report to evidence how firms are achieving customer outcomes.
The New Consumer Duty
The new Consumer Duty represents a marked step up for all parties in the Automotive Protection distribution chain, including the dealers who must deliver positive consumers outcomes for their customers – and help strengthen consumer confidence in the products and services they buy.
Now is the time to integrate the new Consumer Duty guidelines into your business culture. For those firms looking for further clarification, the FCA’s guidance notes of on Consumer Duty questions and check points is available on their website.
