A year on from the introduction of the Financial Conduct Authority’s Consumer Duty, a new report from the financial regulator suggests that many larger insurers aren’t living by the spirit of the regulation.

 The Consumer Duty, which the Financial Conduct Authority (FCA) enacted in July 2023, is a piece of regulation that makes financial firms prioritise ‘good outcomes’ for their customers in the design, pricing and delivery of their products.

The FCA has now scrutinised how 20 large insurers have kept track of their own compliance with the Consumer Duty, and actions they’ve taken to improve where needed. Last week, it published a review of its findings, which suggest many firms are still letting their customers down. 

Here, we take you through what the FCA found, why it matters, and how to find an insurer that will treat you well. 

Insurers fall short of FCA’s expectations

The Consumer Duty doesn’t exhaustively detail what firms should to do to abide by the rules. Instead, firms are expected to continuously monitor how well served their customers are, and to proactively make changes where they’re falling short. According to the FCA’s report, the industry is failing to meet expectations on both of these fronts.

Inconsistent self-monitoring

When it examined how comprehensively insurers were monitoring their customers’ outcomes, the regulator found a ‘wide variety in the quality of responses by firms’, with many falling short of its expectations. It accused many insurers of:

• Being ‘overly focused on processes being completed rather than on outcomes delivered’. For example, insurers might report whether a communications review has occurred or a renewal letter has been sent on time. But they would not then take further steps to determine whether their communications were easy for customers to understand.
• Collecting quantitative data (such as claims acceptance rates or complaints numbers),  but having ‘limited insight’ into the actual experiences of their customers.
• Being unable to provide clear evidence of where monitoring of outcomes had directly led them to proactively make improvements.

Customer support failures

Scathingly, the FCA highlighted cross-industry failures to give customers the support they need, saying: ‘We continue to see substandard service levels across insurance sectors’. It also pointed out shortcomings in the attention firms paid to the outcomes experienced by different groups of customers. For example, many insurers didn’t look at customer outcomes by peoples’ ages, the length of time they’d been customers, or if they had characteristics of vulnerability – such as being in financial difficulty or having low confidence managing money.

This follows on from the FCA’s warning in July 2023, just prior to the Consumer Duty coming into effect, that insurers must improve their treatment of vulnerable customers and how they handle customers’ claims. The regulator noted then that some firms weren’t able to show that they were able to identify vulnerable customers in need of additional support.

 Find out more: read our reviews of how well car and home insurers deal with claims.

Why insurers must have robust monitoring in place

The Consumer Duty is a set of principles intended to put customers’ needs at the heart of how financial companies operate. Firms must carefully consider customer outcomes when designing new products and services. They must also provide ‘fair value’, be clear in their communications with customers, and provide adequate support to their customers after purchasing their products. 

Importantly, insurers must be able to demonstrate that they’re complying with these principles. The first step in doing so is effective monitoring of customer outcomes to assess whether consumer needs are being met. Without appropriate monitoring processes, insurers will not know if their products and services are fit for purpose, delivering against the requirements of the Consumer Duty, and minimising the risk of consumer harm. 

The latest in a string of insurance market failings

Last week’s report is only the latest in a series of critiques the FCA has made concerning insurers’ obligations under the Consumer Duty. 

Between February and May, the regulator froze sales of most of the Gap Insurance market after concluding that these products weren’t providing fair value to some consumers.  

And in March, it published the findings of a review in which it found some car insurers to be systemically offering unreasonably low cash settlements to customers making ‘total loss’ claims. This applies to those whose cars have been stolen or written off.

The FCA’s reports aren’t the only signs of subpar service from insurers. Data from the Financial Ombudsman Service (FOS) show that it’s been upholding increasing proportions of insurance complaints compared with previous years. 

Meanwhile, successive Which? investigations since the Consumer Duty’s implementation have highlighted similar issues. Last November, we examined the deep rooted problems afflicting many home insurance claims. This year, our car insurance customer surveys found marked disgruntlement around the value for money drivers felt they were receiving, as well as with the amounts paid by insurers when settling claims.

• Find out more: how levels of ‘distress and inconvenience’ are rising in insurance complaints  

How to pick a good insurer

Between them, insurers deal with millions of customers, and no insurer will get it right 100% of the time. However, good insurers will pay attention to how their customers are finding their products and service. They will learn from cases where things haven’t gone so well, and will adapt in order to minimise the risk of poor customer outcomes in the future. 

The FCA’s report suggests that many insurers are failing to get this right in the areas it examined, but it didn’t name any names. This means that we can’t use its review to highlight the providers to avoid.  

However, in our insurance provider reviews, we look out for indicators of good and poor practice to help you make a decision about which providers to choose. These include claims and complaints statistics published by the FCA and the FOS. Before recommending any insurance provider or product in our reviews, we scrutinise available data. We won’t endorse a provider where we’ve seen red flags against it in this data.

We’re also big fans of sharing the experiences of existing insurance customers, and our unique Which? Recommended Provider assessments hinge on feedback from customers who have recently claimed. So before you make a final decision on any new insurer, check car insurance, home insurance and health insurance guides to see how it fares.     

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1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 

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4. Alan Boswell Insurance Brokers Ltd (FRN 301), for the introduction of non-investment landlord insurances, who are authorised and regulated by the Financial Conduct Authority to provide advice and arrange insurance contracts. Alan Boswell insurance brokers Ltd is registered in England at Prospect House, Rouen Rd, Norwich NR1 1RE, company number 02591252.

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