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Monday, 14 August 2017 00:10 - - {{hitsCtrl.values.hits}}
“Treating Customers Fairly (TCF) is a cultural issue. It is only through establishing
the right culture that senior management can convert their good
intentions into actual fair outcomes for consumers.”
UK Financial Services Authority (FSA) paper on “Treating Customers Fairly – Culture”, July 2007
Ever since the FSA paper on TCF was released almost 10 years ago, regulators from all seven continents must have learned a salutary lesson in how to regulate and with the benefit of hindsight, no doubt agree that their best intentions clearly fell short of the mark.
Many of the scandals which have engulfed financial services firms across the globe can be attributed to a narrow focus on short term profitability, a disregard for the fair treatment of customers’ interests, and the ineffective management of conduct risks. Even now, the expressions “TCF” and “conduct risk” do not receive due attention and priority in the sphere of corporate governance.
In the first part, we look at some of the key inhibitors effecting TCF transformation.
Part 1 - Challenges inhibiting the TCF transformation
There are a number of factors inhibiting insurers from actually achieving the necessary transformation. Despite the frequently very long timescales involved in insurance, especially in the life sector, investors and management tend to have a short-term performance focus. In addition, there are specific characteristics of the insurance industry which militate against radical action. Insurance is not an industry renowned for radical thinking; insurers are more used to incremental evolution.
Further complications come from the widely varying approaches to distribution in different markets. Some customers still expect face-to-face interaction with insurance agents - for example many Asian markets; others, such as those in the UK and US, are more comfortable with online or mobile purchases. Partly as a result of this variation, a recent KPMG survey noted that only 33% of insurers feel their distribution network generates a consistent positive customer experience across channels.
There is also some confusion and complication over who the customer actually is. Insurers have typically treated their intermediaries and distributors – independent financial advisers and tied agents – as their customers. However, from the regulator’s point of view, the customer is the person who consumes or pays for the product and benefits from any successful insurance claim. Regulators are focusing much more clearly on promoting good consumer outcomes and demanding greater transparency in how much is paid for intermediation. As a result, insurers need to change their attitudes. Systems, processes and mind-sets for dealing with some hundreds or thousands of intermediaries are completely inappropriate for dealing with tens of millions of consumers who may require contact at any hour of the day or night. All told, this makes achieving genuine customer-centricity increasingly challenging.
Nonetheless, regulators around the world continue to focus on TCF and specifically the impact that culture and ethics play in the “protecting customers” equation. And until they see sustained evidence of good conduct, i.e. good customer outcomes, there is no evidence to suggest that regulators are taking their foot off the pedal any time soon. On the contrary, their pursuit of good conduct appears relentless. Indeed, the Market Conduct Working Group (MCWG) of the IAIS has been busy since 2011 assessing a wide array of local regulations in several countries relating to conduct risk and the fair treatment of customers.
In part 2 tomorrow, we’ll look at the impact of corporate culture on customer outcomes.
(The complete article was previously published in the Asia Insurance Review Commemorative Edition for the 2016 EAIC Conference).
