Coronavirus – FCA guidance for insurance and premium finance firms – customers in temporary financial difficulty - UK

• United Kingdom

• Coronavirus - Insurance issues
• Financial services disputes and investigations
• Insurance and reinsurance
• Financial services - Insurance market

18-05-2020

On 14 May 2020, the FCA issued its finalised guidance, together with a feedback statement, following its consultation on measures to help insurance customers who may be in temporary financial difficulty (see our previous briefing). The guidance comes into effect on 18 May 2020. The measures will be reviewed in the following 3 months and may be revised if appropriate.

Actions firms can take

The targeted measures require firms to consider what options they can provide to customers including: 

• reassessing the risk profile of customers. If the risk profile has changed because of coronavirus, there may be scope to offer customers materially lower premiums, or to offer rebates
• considering whether there are other products they can offer which would better meet the customer’s needs and revise the cover accordingly. For example, a motor insurance customer might no longer need add on covers such as key cover or could be moved from fully comprehensive cover to third party fire and theft
• waiving cancellation and other fees associated with adjusting customers’ policies

These actions could result in a reduction in the monthly premium for customers paying by instalments or a partial refund of the premium for customers who have paid up front.

However, if amendments to the insurance cover do not help alleviate the temporary payment difficulties for customers paying their premium in instalments, the FCA expects firms to grant customers a payment deferral, unless it is obviously not in the customer’s interests to do so.

The payment deferral should be granted for a period of between 1 and 3 months, though firms can go beyond 3 months should they wish to do so, and it is in the customer’s interests. Customers should be able to request a payment deferral at any point during the period up to 18 August 2020 while the window for requesting a payment deferral is open.

Where a payment deferral is not considered appropriate, firms should promptly offer other ways to provide temporary relief to the customer. These could potentially include (but not be limited to):

• accepting reduced repayments, or rescheduling the term
• waiving missed or late payment fees
• permitting a customer to amend their repayment date without any cost

Firms should also  consider reviewing interest rates associated with instalments to determine whether they are consistent with the obligation to treat customers fairly in the light of the current exceptional circumstances.

And finally, firms should make clear in their communications, including on their websites and apps, the different solutions available to customers, and encourage them to make contact if they are experiencing temporary financial difficulties.

Feedback Statement

The finalised guidance broadly mirrors the draft guidance. In its feedback statement, the FCA responds to specific queries raised in response to the consultation and has refined the guidance in the following areas:

• as to who the guidance applies to – the FCA is largely referring to ‘customers’ rather than ‘consumers’. Guidance relating to premium finance credit agreements is not intended to capture lending for business purposes. The guidance applies to non-investment insurance contracts and excludes reinsurance and investment-based contracts, but there is now clearer expectations for to pure protection contracts
• that ensuring consumers still have essential cover that meets their needs is a key objective, and that for some products, e.g. pure protection, a reduction or suspension of cover may not be appropriate
• firms do not have to consider an interest rate revision as a prerequisite to offering a payment deferral
• there is flexibility for firms to offer a payment deferral period of between 1 and 3 months
• that the FCA is primarily concerned that firms provide support to those customers who contact firms, but that firms can take steps to proactively engage with customers who they suspect may be in financial difficulties, if seen to be appropriate
• if claims are made during a payment shortfall, in line with current practice, firms can deduct outstanding premiums from any payment due

Next Steps

Whilst it is only guidance, it clearly sets out the FCA’s expectations. When considering what steps to take in light of these measures, firms should document clearly the rationale for any decisions taken, to ensure that firms and Senior Managers are able to demonstrate that they have given due consideration to the guidance and taken reasonable steps to comply with their regulatory obligations, particularly in respect of Principle 6.

Useful links

FCA confirms measures to help insurance customers who may be suffering financial difficulties as a result of coronavirus

FS20/5: Coronavirus and customers in temporary financial difficulty: guidance for insurance and premium finance firms

Coronavirus and customers in temporary financial difficulty: guidance for insurance and premium finance firms

FCA coronavirus (Covid-19) hub