Vulnerability Levels in the General Insurance Market: Unpacking the Realities and Responsiveness to Consumer Duty

Let's talk about vulnerable customers. This topic is of paramount importance in our industry and ties directly to the Financial Conduct Authority (FCA) mandates, particularly Consumer Duty outcomes 3 and 4. The exploration of this issue not only ensures compliance with these outcomes but also aids in promoting ethical business practices and, more importantly, serves to protect the rights of every consumer.

At Consumer Intelligence our recent study, involving 3200 home and motor insurance buyers, offers some compelling findings related to vulnerability. We'll discuss these in detail below and explain how businesses can optimise their practices to meet the requirements of Consumer Duty.

Defining Vulnerable Customers

The FCA provides a clear definition of vulnerable customers. These are consumers who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. The vulnerability could be temporary or permanent and may be impacted by various factors, such as health conditions, financial circumstances, or life events.

In our study, participants were presented with this FCA definition and asked if they felt it applied to them. Their responses paint a revealing picture about self-perceived vulnerability, and even more so when correlated with their chosen insurers for home and motor insurance.

The Vulnerability Spectrum

In the image above you can see the findings for #HomeInsurance and #MotorInsurance. The yellow lines on the graph indicate general agreement levels divided between home and motor insurance, with home insurance showing higher levels of understanding. The purple lines represent results for individual insurers.

One of the key takeaways from this study is that vulnerability is not uniform across products or insurers. This finding contradicts the assumption that a one-size-fits-all approach can apply to Consumer Duty outcomes 3 and 4. On the contrary, our data shows a diverse vulnerability spectrum within the general insurance market.

This diversity underscores the necessity for insurance companies to gain a granular understanding of their customer base. It's crucial to identify whether their practices specifically advantage or disadvantage customers who identify as vulnerable. To achieve this, they need to comprehensively understand how their practices benchmark within the industry.

Benchmarking and the Path Forward

Benchmarking provides an objective measure of business practices and their effectiveness, allowing companies to compare their performance against industry standards or competitors. It is an essential step in ensuring that firms meet the standards set by the FCA and more importantly, serve their customers' best interests.

When it comes to vulnerable customers, insurance providers must be more diligent in their benchmarking process. They need to evaluate their policies, products, and services, asking tough questions about how these factors impact their most vulnerable customers. Are their products easily accessible and understandable? Are their services tailored to meet the unique needs of these customers? These are some of the questions that need to be at the forefront of their benchmarking exercises.

In conclusion, it's vital for insurers to not just understand who their vulnerable customers are, but also how they are serving them. The diversity in vulnerability levels across the market means that a blanket approach will not suffice. Insurance providers must take on a more nuanced, personalised approach, informed by a robust understanding of their customers' unique needs and circumstances.

As the industry continues to evolve, it's essential to keep consumer protection at the core of all practices. Remember, a market that caters to all its customers, regardless of their level of vulnerability, is a healthier, more sustainable market.