FCA has published its finalised guidance for insurance and premium finance firms on dealing with Covid-19 and customers in temporary financial difficulty. The guidance should be complied with no later than 18 May and is aimed at prompting firms to help qualifying customers where possible to reduce the impact of temporary financial distress and ensure customers continue to have insurance that meets their demands and needs. The guidance notes that merely complying with FCA’s (draft) product value guidance due to take effect before the end of the month will not address all customer-level financial difficulties. FCA received 59 responses to its draft guidance and has made a small number of changes as a result.
FCA notes the guidance builds on Principle 6 and ICOBS 2.5.-1R and applies to insurers, intermediaries (including ARs), premium finance (by which FCA means any method that provides credit to allow customers to pay a premium by instalments, whether under a regulated credit agreement or otherwise) lenders and brokers, debt collectors and other firms that may be involved in relevant arrangements and in relation to all non-investment insurance contracts, but not re-insurance.
It also notes that the elements that apply to insurers and brokers apply only to eligible complainants for the purposes of DISP and that it does not capture lending for business purposes (eg regulated lending to a sole trader) – although of course basic TCF principles would continue to apply. Also, as with other guidance, it stresses that customers who were already in financial difficulties before Covid-19 should be assessed under the normal forbearance rules.
The guidance:
- asks firms to focus on cases where a customer contacts the firm because they are in payment difficulties, want to reduce cover or have made other enquiries in the light of Covid-19 or have missed payments during the crisis period;
- asks firms to consider what options they can give to the customer and how to deliver a fair outcome, including:
- reassessing a customer’s risk profile (for instance to offer lower motor insurance premiums for customers not currently using cars for business purposes)
- considering whether other products might meet the current needs better
- working to avoid customers needing to cancel necessary cover because they cannot afford it, by offering payment deferrals, but also not charging cancellation fees if customers decide to cancel and considering their obligations to treat customers fairly if those customers then return to the insurer and
- waiving any fees associated with any qualifications made to a policy;
- stresses the importance of clear communications making options available, encouraging customer contact and making it as easy as possible for customers to contact the firm;
- notes the importance of continuing to ensure cover is suitable, and that it is most unlikely to be fair to customers if any changes result in increased premium;
- highlights that if it is appropriate to adjust cover on a short-term basis, firms must be sure to reassess the situation at the end of the term to minimise the risk of under-insurance;
- confirms FCA’s expectations on firms to grant payment deferrals (without having to ask questions to assess the appropriateness of a deferral) if other options fail and unless it is obviously not in the customer’s interests to do so – this will entail insurers not cancelling policies solely because of non-payment where a payment deferral has been granted. The deferral period would normally be between 1-3 months but could be longer;
- allows customers to request a payment deferral up to 18 August;
- requires firms to consider alternative temporary relief where a deferral is not appropriate, such as reduced payments and extended payment dates – and in any event not charging customers for any deferral or other measure;
- says customers should be given adequate information to understand the implications of deferral, and that firms should engage with customers during a deferral period to understand the likelihood of payments resuming;
- clarifies that if a claim is made during a deferral period or where other forbearance measures are in place, firms can deduct outstanding premiums from sums due;
- urges firm to assess the effects of interest rates; associated with instalments to ensure they meet TCF criteria; and
- notes the need to work with CRAs where firms have not reached an agreement wtih customers who then default on a payment due.