On 14 May 2020, the Financial Conduct Authority (FCA) published final guidance for insurers and premium finance firms on the fair treatment of customers who are experiencing financial difficulty as a result of coronavirus (COVID-19) – see FS20/5: Coronavirus and customers in temporary financial difficulty: guidance for insurance and premium finance firms. The finalised guidance will take effect from 18 May 2020. The guidance is temporary and will be reviewed after three months.
Points to note are that the guidance is not limited to consumers but applies to customers more widely except where reference is made to premium finance, where the guidance relates only to consumer lending. The guidance applies to non-investment insurance contracts, but not to investment-based insurance or to reinsurance.
The guidance operates on the assumption that firms provide assistance to customers who have contacted the firm about temporary financial difficulties caused by COVID-19 or where the firm believes that a customer is in financial difficulties, for example because they have missed premium payments.
What actions can firms take to support customers?
When a firm has identified that a customer is in distress it must consider its obligations under Principle 6 (known as Treating Customers Fairly) as well as ICOBS 2.5.1 (the customer’s best interests rule). Actions might include:
- Re-assessing the risk profile of the customer (for example, where a motor insurance customer is not driving their vehicle);
- Considering whether there are other products the firm might offer the customer that would be more suitable in the circumstances;
- Considering payment deferrals; and
- Considering waiving fees such as cancellation or adjustment fees.
The different options available to customers in financial difficulty should be made available on firm websites and on apps so that customers are aware of their options.
If amendments to cover do not alleviate financial difficulties, customers should be offered payment deferrals unless such offers would be against their best interests. Customers should be able to request a payment deferral at any point up to 18 August 2020.
The FCA has said that it expects firms to review interest rates associated with instalments to ensure that they are consistent with the obligation to treat customers fairly in the current exceptional circumstances.