Context
The FCA has published draft proposals designed to protect customers who continue to face financial difficulties due to the impacts of coronavirus. The proposals set out the FCA’s expectations about how support should be provided in respect of insurance and regulated credit premium finance agreements and, if accepted, the requirements will come into force with effect from 1 November 2020.
The guidance applies to regulated firms operating in the insurance and premium finance markets. This includes:
- Insurers
- Insurance intermediaries (including appointed representatives)
- Premium finance lenders that provide credit to fund the payment of insurance premiums in instalments
- Premium finance brokers that carry on regulated activities relating to credit granted for the purposes of financing insurance premiums in instalments
- Debt collectors
- Other firms which may be involved in insurance arrangements and/or the provision of premium finance
The guidance sets out the FCA’s expectations for firms when considering the fair treatment of customers who are in financial difficulty, due to circumstances arising from coronavirus. The aim of the guidance is to prompt firms to help customers, where possible, in order to:
- Reduce the impact of financial distress
- Ensure that customers continue to have insurance which meets their needs
Key points to note
- The guidance is not intended to have any relevance in circumstances other than those related to coronavirus and is designed to protect consumers by providing them with temporary and, when necessary, longer term support with their insurance and regulated credit premium finance agreements.
- The previous guidance published in August is due to expire 31 October 2020, however there are certain provisions included within the August guidance, particularly in respect of payment deferrals granted, that will remain in force.
- It is expected that this new October guidance will remain in force during the circumstances created by coronavirus until varied or revoked.
Insurance – FCA expectations
- Ensure that insurance policies are not cancelled solely due to non-payment without considering other options first.
- Ensure that the customer’s current circumstances are considered and whether these present opportunities for revising cover, for example by reassessing their risk profile and the need for associated add ons, which could deliver a reduction in premium.
- Waiving of cancellation fees and any fees normally associated with policy adjustments.
- Ensure that the available support, and method of accessing this support, is publicised and ensure that customers with different communication needs are considered.
- Ensure that when writing to customers in respect of missed payments, information is included to make customers in financial difficulties aware that they can obtain support and how to access it.
Premium Finance – FCA expectations
- This section of the guidance sets out the FCA’s expectations of firms providing forbearance to customers who have entered into regulated credit agreements in respect of their insurance premiums and who:
- have been granted payment deferral under the previous guidance, which is coming to an end, but remain in financial difficulty, or
- experience financial difficulty as a result of circumstances relating to coronavirus after 31 October in relation to such regulated credit agreements
- If amendments to the insurance do not help alleviate the payment difficulty for customers paying their premium under regulated credit agreements, the firm should deal with the customer in accordance with the guidance included in relation to premium finance arrangements.
- The FCA wants firms to deliver the following outcomes:
- Firms are to have due regard to the interests of their customers and treat them fairly.
- Customers are treated with forbearance and due consideration.
- Where applicable, customers are given sustainable arrangements, considering their other debts and essential living costs, which allow them reasonable time and opportunity to repay their debt.
- Customers are not pressurised into repaying their debt within an unreasonably short period of time.
- Customers are protected from escalating debt once they have entered a forbearance arrangement with a firm.
- Firms recognise vulnerability and respond to the needs of vulnerable customers.
- Firms have clear, effective and appropriate policies and procedures for dealing with customers in financial difficulty and for those whom the firm understands, or reasonably suspects, to be vulnerable and that firms have adequately trained staff to provide their customers with the help they need.
- Customers are allowed time to consider their options and, if necessary, seek debt advice before deciding on the support they take.
- Customers are referred to debt advice if this is appropriate.
- The guidance includes further expectations specific to:
- Dealing with customers at the end of a payment deferral who remain in financial difficulty
- Dealing with customers in financial difficulty because of coronavirus; including the following:
- Engaging with customers seeking support before missing a payment
- Considering a range of forbearance options
- Sustainable arrangements
- Income and expenditure assessment
- Preventing escalating balances
- Reviewing arrangements
- Customer engagement
- Supporting vulnerable consumers
- Training, competence and staff incentives
- End to end quality assurance
Next actions
The consultation on this draft guidance closed on 20 October and if accepted, the requirements will come into force with effect from 1 November 2020.