TCF - There is no escape for insurers from this!!!!!

TCF - There is no escape for insurers from this!

Treating Customers Fairly (TCF) is a regulatory framework and a set of principles aimed at ensuring that financial institutions conduct business in a way that prioritizes the fair treatment of consumers from product design, marketing to sales and finally post-sale services. Insurance Core Principle 19, issued by the International Association of Insurance Supervisors (IAIS) (2019), emphasized the importance of TCF. It mandated insurers and intermediaries to establish and implement policies and processes on the fair treatment of customers as an integral part of their business culture. TCF, also known as customer delight, is a form of self-regulation that significantly contributes to insurers' goodwill. It serves as a reminder for insurers to consider their customers' perspectives throughout the insurance product life cycle.

?

Origins and Existence

It is believed that Treating Customers Fairly concept originated in UK driven by the Financial Services Authority (FSA), a regulatory body for financial services at that time. Back home, the obligation on companies to treat their customers fairly is not new at all in Zimbabwe; it is partially part of existing regulatory requirements from the company acts to the Consumer Protection Act and is firmly rooted in our principles of doing Business.

So why are we now talking about TCF in Zimbabwe? What is really new?

1. Regulatory focus
2. Regulatory consequences for the non-compliant players - Strict consequences.
3. Global Best Practices - For compliance with international standards and competitive edge
4. Clearer accountability - Transparency and defined Responsibilities
5. Customer-centric Business Models
6. Regulatory consequences for the non-compliant players - Strict consequences.
7. Holistic Implementation - Having an integrated Approach and applying standards holistically

???

The Commission Insurance & Pensions Commission ZIM issued the TCF Framework to the Insurance and Pensions Industry in February 2021. Subsequently, IPEC introduced a section in the quarterly industry reports titled “Complaints Handling”, updating the stakeholders on issues of clients not being treated fairly. Most importantly, in their presentation dated 17 March 2022 titled “treating customers fairly framework Presentation to the pension sector,” IPEC clearly highlighted that any Fund with at least 50 valid complaints against them per quarter may result in their licence being revoked; underscoring the framework's critical importance through its repercussions!!!!

Is it a compliance issue?

All organisations, specifically those licenced under IPEC are required to integrate the TCF principles in governance frameworks and processes. Furthermore, they are requested to demonstrate that they measure their behaviour against these key principles so as to manage market conduct risks and look after their customers. (It is mandatory).

Regulations which supports TCF

A.????? Section 65 of the Constitution

B.????? Insurance Act (Chapter 24:07)

C.????? SI 2020-069 Insurance and Pensions Commission (Issuance of General Guidelines and Standards) Regulations, 2020

D.????? Consumer Protection Act [Chapter14:14] Sections 9-54

E.?????? Money Laundering and Proceeds of Crime Act (Chapter 9:24)

F.?????? Insurance Core Principle 19 ((IAIS) 2019)

Who can quickly benefit from this Framework?

Companies aiming to pursue client centricity and integrate it deeply into their business philosophy, ethos and culture are responsible for adopting TCF outcomes.? Embedding all the TCF principles throughout the end-to-end insurance value chain is essential. Customers are prone to invest where they trust, thus making fair treatment more than just regulatory compliance. Consequently, fairness can serve as a potent differentiator in a competitive marketplace (The Zimbabwean insurance market is like a Red Ocean).

?

TCF Goal

The goal or objective of TCF is to enhance customer confidence in the financial services industry by encouraging integrity, transparency and customer-centric practices. This will warrant that customers receive equitable or fair outcomes and are provided with clear information to make knowledgeable decisions. The TCF framework combines market-conduct principles and regulations so as to ensure the delivery of clear and quantifiable fairness outcomes. Placing insured’s/policyholders at the heart of an insurer’s business and aiming to achieve the accepted TCF outcomes safeguards a win-win situation for everyone and the economy at large.

?

THE MERITS OF TCF

1.????? The TCF framework is definitely morally compelling.

i.???????????????????? Instils respect for policyholders welfare and rights

ii.?????????????????? Enhances policyholders trust and confidence leading to satisfaction and loyalty

iii.????????????????? Gives you a market differentiation thus a positive Brand Image and competitive edge

iv.???????????????? Good will - TCF framework aligns with moral and ethical business practices

v.?????????????????? Corporate Social Responsibility(CSR)

vi.???????????????? Promotes good ethical business practices

vii.??????????????? It is part of regulatory compliance

viii.????????????? Operational Efficiency and it contributes Long term Sustainability

ix.????????????????? Most importantly Cultural Shift

2.????? Apart from being morally appealing, TCF effectively reinforces self-regulation among firms under regulatory oversight.

3.????? Promoting TCF will improve the insurance penetration rate. By prioritizing customer satisfaction throughout the value chain, insurers in Zimbabwe can restore and build the confidence of policyholders.

Who is responsible for the TCF in an organisation?

Whilst it is all too easy to rely on a Compliance/Customer experience function to be responsible for gate-keeping, it is clearly the responsibility of all parties to take ownership for TCF. It must be a top to bottom approach and must feed into the Board and Audit & Risk Committee. In the Zimbabwean context, the board must stay actively informed of key TCF metrics without exemptions!! Non-compliance could endanger your license.

?

Intermediaries

Intermediaries are a key part of TCF framework. ?As previously highlighted by Taurai Pambweyi in a conversation with Trevor https://www.youtube.com/watch?v=xbI4GVnh8lQ , given potential disparities in understanding between insurance providers and policyholders, intermediaries often assist customers in navigating product selections and many other things. This underscores the importance of fair treatment of customers by intermediaries. However, there is a risk of mis-selling or aggressive sales tactics by a broker underscoring the need for brokers to self-regulate.

With the above, it is clear that all policy holders are inherently vulnerable due to the one-sided nature of insurance agreements. To ensure positive outcomes, brokers and insurers must ensure their employees possess the necessary skills and capabilities to address customer needs. They must address these needs throughout the value chain and adapt their communications to meet changing requirements. Additionally, insurers should continuously monitor and evaluate their responsiveness to customer needs and make improvements where necessary. Willingness to walk the extra mile for the interest of customers can give result ONLY when every person is in a position to appreciate it.? Remember: Regulation and law can frame rules and fix penalties only; they cannot alone give birth to an ethical culture.

?

SETTING UP AND MEASURING THE IMPACT

The six TCF principles to be adopted??

Outcome 1: Culture and Governance

TCF is a cultural issue. It is expected to be driven from the top and demonstrable commitment from senior management must be evident. Policyholders can be confident that they are dealing with an insurer where the fair treatment of policyholders is central to the insurer’s culture. The approach that HR takes on human resources must be the same approach an organization adopts for TCF: reward both within the organization and in the front-line business areas for each and every TCF achievement.

Outcome 2: PRODUCTS & SERVICES

Products are designed to meet the needs of identified types, kinds or categories of policyholders and are targeted accordingly. To ensure that all product design, product development and pricing activities place the customers’ needs at the forefront of their process.

Outcome 3: POINT OF SALE

Policyholders are given clear information and are kept appropriately informed before, during and after the time of entering into a policy. Disclosures should be clear, Transparency, accurate and easy to access.?

Outcome 4: ADVICE

Where policyholders receive advice, the advice is suitable and takes account of their circumstances. Insurers registered representatives MUST always understand the client’s needs and their financial situation, to ensure that they are able to make appropriate recommendations to both individual and corporate clients in relation to the most appropriate risk solutions for their business.

The committees to be discussed (Setting up of teams/committees) below must conduct a skills audit for each department to ensure they meet the "Fit and Proper" requirements in line with IPEC guidelines for product knowledge and competency requirements.

Outcome 5: PRODUCT & SERVICE PERFORMANCE

Policyholders are provided with products that perform as insurers or their representatives have led them to expect and the associated service is both of an acceptable standard and what they have been led to expect.

An insurer must have technical team and governance structures that are tasked with ensuring that all potential risks in relation to the products sold are identified, rectified and tracked proactively within the organization. The team must always work with actuarial and data analytics department to ensure that projections in relation to performance are proactively tracked, monitored and reported on a daily, monthly and quarterly intervals to ensure that we are able to satisfy prudential requirements.?

On Marketing, the insurers must insurer that the information laid is not misleading. It is also important to set up Product Management Committee (“PMC”) and Market Conduct Steering Committee for quality services and products (to be discussed below).

Service requirements must be built into all performance management scorecards to ensure that higher service levels are not only implemented but also maintained, tracked and monitored.? Insurer must come up with robust service level agreements internally and for outsourced business partners.? Market Conduct standards are reviewed constantly, especially where trends of poor customer treatment are identified with specific types of products or services offered.

Outcome 6: Post Sales Barriers

Policyholders do not face unreasonable post-sale barriers to change or replace a policy, submit a claim or make a complaint. Customer experience throughout their journey must be of a standard and quality which does not prejudice the customer in any manner whatsoever.

How to setup the TCF Framework:

TCF should impact and integrate with all processes, people (employees and customers) and systems, having overarching outcomes as oppose to singular rules. This can sometimes lead to varying interpretations on how to implement TCF and how best to meet the needs and requirements of consumers.

Here is my suggestion for how a company can be set up, though it's important to note that this is not a definitive guideline as each company is unique.

1.????? Setting up of teams/committees

A company must come up with a TCF committee primarily comprising members of Customer service, Risk, Internal Audit, compliance, HR and IT departments, working with the operations team across the value chain. Additionally, the company must set up a Market Conduct Steering Committee comprising of executives (for issues also to do with accountability).?

2.????? Designing the TCF Policy

To ensure that TCF is firmly embedded within the organization, the aforementioned committees should collaborate on designing the TCF policy.

3.????? TCF Self-Assessment Template and automated implementation plan?

These are tools used by insurance companies to evaluate their adherence to TCF principles and to streamline the implementation process. The template includes elements such as assessment criteria, scoring mechanisms, and documentation of evidence. Automation allows for easy customization, workflow management, and integration, while providing accurate reports to specific line managers for monitoring and evaluation

4.????? TCF Training and Awareness Programmes

Provide regular training to employees at all levels about TCF principles, customer-centric practices and the importance of fair treatment. The training should be done by both internal and external trainers to ensure comprehensive coverage.

5.????? Come up with TCF Key Fairness Indicators?

Key Fairness Indicators (KFIs) are metrics used to evaluate how well an organization adheres to TCF principles and ensures fair treatment of customers. These indicators help monitor performance, identify areas for improvement and ensure compliance with regulatory standards. Depending on the level of automation, an insurance company can utilize various KFIs, including:

-????? Customer Satisfaction and Experience

-????? Product Suitability and Transparency

-????? Sales and Marketing Practices

-????? Claims Handling and underwriting practise

-????? Complaint Handling

-????? Communication and Transparency

-????? Employee Training and Competence

-????? Governance and Culture

-????? Regulatory Compliance

6.????? Host TCF Governance Forums

Through the Market Conduct Steering Committee, discussions on TCF Scorecard Measurements are crucial. Below are the key metrics to consider:

a.????? Customer Outcomes

• Customer/partner Satisfaction Score – Do an extensive customer survey preferably by a third party for issues to do with transaparencey and the insurer must extensively define customers/partners.
• Customer Retention Rate

b.????? Product Suitability and Transparency

• Policy Cancellation Rate - it indicates potential issues with product suitability or customer expectations
• Product Approval Rate – Measures the percentage of products meeting suitability criteria for different customer segments, overseen by the Business Development Manager.

c.?????? Sales and Marketing Practices

• Complaints about Mis-selling - This is one of the biggest problems when you are distributing your products via Tele-Sales or agents (Foot soldiers).
• Sales Quality Audits -? Conduct 20 mystery shopping exercises across all channels or Verify completeness and accuracy of customer information?

d.????? Claims Handling

• Claims Settlement Time
• Claims Rejection Rate

e.?????? Complaint Handling

• Complaints per 1000 Policies
• Complaint Resolution Time –automation is very important. A complaint should be logged in the system in the form of ticketing for easy evaluation and analysis when doing TCF?

f.??????? Communication and Transparency

• Information Clarity Score - Measures how clear and understandable customers find the information provided by the company
• Customer Feedback on Communication

g.????? Governance and Culture

• Culture Surveys - Surveys to assess the organizational culture regarding customer fairness and TCF principle

h.????? Regulatory Compliance

• Regulatory Breaches
• Compliance Audit Results?

The TSF committee will present a comprehensive report on the key TSF matrix to the steering committee for accountability. However, this can only succeed if the company has a high automation score on their processes with robust data collection systems. The Steering committee on the other hand will have come up with bench marks (based on the acceptable industry standards) for comparison.

7.????? Annual TCF evidence review

Mainly done to;

• Evaluate Adherence
• Identify Improvements
• Ensure Compliance
• Inform Strategy

To ensure that TCF principles are firmly embedded within, a combined assurance approach will be maintained. This approach provides regulatory authorities, shareholders, the board, and executive management with confidence that TCF practices are effectively controlled and integrated throughout the organization.

Should we wait for things to get bad?

An insurance company should implement robust automation that enables timely data submissions across the value chain. This ensures regular, accurate, and reliable data exchange, empowering the steering committee to proactively scrutinize management information. This proactive approach helps identify potential instances of poor customer outcomes early and take necessary mitigation measures

Known Limitations and solutions

1.????? Cultural Resistance

Outcome 1 clearly discusses about the culture of an organisation when implementing TCF. Transition or shifting to a culture that fully embrace TCF principles can cause some resistance from the workforces who are accustomed to traditional approaches. A mismatch between company policy and actual practices may then follow leading to the policy failure.

Cultural problems can be solved by:

• Adopting a customer-centric culture from the executive down.
• Open clear lines of Communication and outline the importance of TCF principles through training and workshops
• Show leadership exemplification.
• Give responsibilities and demand Accountability!
• Incentivize behaviours that prioritize fair treatment of customers.

2.????? Harmonizing Profitability and Fairness

There can be a tension between achieving business profitability and adhering to TCF principles. Sales targets and performance incentives may sometimes conflict with the goal of treating customers fairly.

?Solution

• Adjust incentives and performance measures to incorporate customer satisfaction and retention objectives in addition to financial targets. Ensure that Key Performance Indicator (KPI) weights are not skewed towards financial targets; initially, strive for equal weighting.
• Promote a long-term perspective within the board, emphasizing how customer trust and satisfaction can enhance sustainable profitability.

3.????? Financial demand: Training and Competence

Ensuring that all employees, particularly front-line sales staff, fully understand and implement TCF principles requires continuous training and development. However, maintaining high standards of competence can be resource-intensive.?

Solution:

• It is essential to allocate a budget for all TCF expenses before proceeding
• Develop comprehensive training programs encompassing modules that cover TCF principles, customer service skills and ethical sales practices. (Internally and externally)
• Provide continues education

4.????? Measuring Fairness

Developing effective metrics to measure fairness and impact of TCF initiatives can be challenging. Conventional performance metrics might not adequately capture customer outcomes and satisfaction.

Solution

Assessing gaps in any area of compliance requires an effective knowledge of what is being assessed. For instance, if a company does not fully understand what TCF means to them, they will struggle to even develop an effective TCF checklist. Therefore, It is essential to understand each outcome in detail

• Establish and implement specific metrics for measuring fairness, such as customer satisfaction scores, complaint resolution times and product suitability assessments.
• Come up with a TCF check list, score card etc.
• Regularly review and adjust these metrics based on feedback and performance

5.????? Customer Awareness and Education

One big problem with TCF is lack of customer awareness and education. Imagine having a policyholder who does not know his rights regarding a policy; even if companies strive to adhere to TCF principles, customers may still lack awareness or understanding of their rights and the protections available to them limiting the effectiveness of TCF initiatives.

Solution

• An insurer must launch customer education campaigns that clarify their rights, policy features and the principles of TCF.
• Making use of the digital channels to effectively disseminate information.
• From the regulator side; IPEC has already launched a program focused on customer education campaigns.

6.????? Handling of Complaints

Handling complaints is a critical aspect of customer service. Unfortunately, many complaints are often ignored or mishandled, leading to a loss of trust and credibility.

Efficiently managing and resolving complaints in a manner that aligns with TCF principles requires well-defined processes and trained staff.

Solution

• Establish a robust complaint management system that includes clear procedures for logging, tracking, and resolving complaints promptly.
• Train staff on effectively handling complaint and use feedback from complaints to drive continuous improvement.
• Let Risk and compliance have foresight on each and every complaint so that crucial matters of bad reputation are quickly noticed and corrected.

?

TCF IS HERE!

Sources

1.????? https://www.veritaszim.net/

2.????? https://ipec.co.zw/

3.????? https://www.fca.org.uk/publication/archive/fsa-tcf-towards.pdf

4.????? (https://www.pwchk.com/en/insurance/publications/placing-treating-customers-fairly-at-heart-of-insurance-feb2024.pdf)

5.????? https://www.knowyourcompliance.com/implement-treating-customers-fairly-tcf-into-your-organisation/

6.????? Journal of Law and Society , September 2011, Vol. 38, No. 3 (September 2011), pp. 405-42

7.????? Dan Awrey, William Blair & David Kershaw, "Between Law and Markets: Is There a Role for Culture and Ethics in Financial Regulation?", (2013), op cit, p 221; Financial Services Authority, United Kingdom, "Treating customers fairly – towards fair outcomes for consumers", July, 2006, op cit, p 5, § 1.9.

8.????? Financial Conduct Authority, "Discussion Paper on a duty of care and potential alternative approaches", report number: DP18/5, Consumer Insight, July 2018, p 10.