Clearly when in circumstances like the coronavirus crisis you would expect a regulator to be scrutinising both the financial security and behaviour of insurers but with two quick consultations happening in such a short period there is a greater focus in the spirit of “We are all in this together and insurers are expected to do their bit”. However, what has been suggested by the FCA makes business sense as well as simply being the right thing to do. With the industry already well positioned to support people, in a diversity of ways, the FCA checks, whilst welcomed provides the industry with a chance to clarify what it is doing rather than change anything materially.
On May 1st the FCA the first consultation addressed how to support those customers facing financial difficulties. Covering both general insurance and protection its aim was to prompt firms to help qualifying consumers (in the corporate market read this as employer customers), where possible, to:
- Minimise the impact of temporary financial distress.
- Ensure that customers continue to have insurance that meets their demands and needs.
With a tight deadline, one of the shortest ever, of May 5th, the good news was that the protection Industry had already prepared for such queries and was well down the track of addressing this issue with a sentiment expressed in our own FAQs representative of the industry approach being adopted for corporate customers, “During these challenging times, we want to help our customers as much as we can. We are happy to consider flexibility for those who need it.”
With both ILAG and the ABI responding to the FCA on this consultation, the response from the Trade Bodies that represented us was well within the spirit of the FCA request, was both quick and concise with ILAG commenting, “It is vital that the industry works together, especially during these unprecedented times, to ensure good customer outcomes. This is especially the case for those with increased vulnerability and financial difficulty because of the Coronavirus pandemic. Our members are working tirelessly, with as much flexibility as possible, to ensure customers remain protected throughout the current hardship.”
The ABI specifically made a point of thanking the FCA for applying a range of measures, rather than a specific range of edicts, and both the ABI and ILAG also sought clarification of the application of guidance e.g. what criteria should be used to establish whether a customer is in financial difficulty, a 3 months window was suggested by the FCA – what if the crisis went beyond this and when would the 3 months start, how to reinstate payments if a customer still cannot pay, what customer communications are needed (especially for vulnerable customers), what the legal basis of the guidance is etc. etc. In essence the support for customers in financial distress was already in place, initiated prior to the consultation, but with the guidance formalising this further, clarity from the regulator was needed at a tactical, industry rather than at an insurer level.
The second FCA consultation was also issued on 1st May but with a response by 15th May and covered product value – are our products still relevant and providing value in the current environment? A range of areas were assessed by the FCA and so, whilst as we go to press, this is how I would like the industry response to measure up to the FCA request as for me it is times like these when the benefits of protection products and value has never been higher.
In answer to the “Establishing product value / relevance in the current crisis” and assessing the financial benefits I think that all would agree that protection benefits in the workplace have increased in importance and should be the last thing employers should look to be cutting. In essence why would employers stop, reduce or postpone a decision when the need for it has never been greater? Additionally as the government has launched the £60k Life Assurance scheme (topping up NHS but providing other front line staff, specifically care homes, with some death benefit) clearly this illustrates the importance of this benefit and acknowledges that the majority of people are either uninsured or have too little protection. Many group protection benefits fulfil employer or Trustee contractual obligations and so by removing it the employer is putting themselves in a precarious position as a death benefit would still have to be paid (whether the employee is furloughed or not as a contract of employment still exists until terminated). We must never forget we provide financial benefits as insurers and never has the need for these been greater.
Alongside the insurance / financial piece the statement, “The need for these has never been greater” resonates with support services too – whether they be existing ones or new ones introduced or extended as the industry looks to support employers and employees cope with the crisis. In addition to the financial benefits insurers provide GP helplines, Apps which support mental health, fitness and nutrition, EAPs which support mental health, debt management and have Covid 19 toolkits, online and telephonic legal support for employers with online documents covering furloughed employee letter, at home risk assessments etc. etc. mean that the retention and value of group protection has never been higher or more relevant. With most free at point of use, some for family members and for users not having to be claimants, the wider UK population support we are providing from our 13m insured people should not be under-estimated, not least as the mental health consequences of the crisis are clearly a concern for many pundits and politicians. These are lost on cessation of cover and so the message has to be to retain cover if you can as then you retain access to an amazing raft of support services.
In the section on “Proposed Guidance” covering contractual terms, the industry has in the main quickly (usually through FAQs) clarified terms and conditions in the light of emerging legislation e.g. overseas travel and secondments. Where changes have been made e.g. what benefit would be paid for a furloughed salary worker, how does actively at work apply for those isolating etc., the industry has not changed any term detrimentally for customers. In the main group life benefits have no exclusions aside from event limits (including for pandemic risk) which are unlikely to exclude payments as they are usually £50m-£100m of benefit per site (with some sites having larger limits as risks are split / capacity becomes available).
Therefore, in the main, the whole of workforce are covered for their full death benefit entitlement and it is this product which is immediately relevant, with an increased importance, as excess deaths are already exceeding previous years’ experience. Additional flexibility has been provided by the industry to ensure we comply with our contractual terms whilst recognising the current circumstances e.g. paying claims on reduced medical evidence (to alleviate strain on NHS staff) and accepting editable PDFs and forms when usually the industry usually requires hard copy signatures on forms.
In summary the industry has reacted quickly, on both the ‘financial difficulties’ and ‘product value’ consultations. This has been done with clarity and flexibility, recognising the need for speed and accuracy of decision making and communication and with no perceived industry detriment to customers. There have been no material changes to reduce customer value and if anything the importance of Group Protection has never been higher and wherever possible these benefits should be retained over all others. In light of the steps undertaken by the Protection industry the hope is that the work undertaken by insurers will lead to customer, adviser and insurer clarity rather than any wholesale or significant changes to what insurers are already doing and providing.
Sources-
- Consultation 1:
- Consultation 2: