UK: Insurance Market Update - The Deloitte View For Life Insurers

Last Updated: 2 December 2009
Article by Deloitte Financial Services Group

Most Read Contributor in UK, August 2017

Welcome to this October edition of the Insurance Market Update, in which we focus on issues in the life insurance industry.

This month, we look at a very important area of FSA regulation that aims to improve consumer capability and ensure firms deliver fair outcomes for consumers – Treating Customers Fairly ("TCF").

Following the events of the last eighteen months, the TCF agenda remains very much a priority for both the FSA and the industry – it is central to the delivery of the FSA's retail regulatory agenda as well as being a key part of its move to more principles-based regulation. In their article, Cindy Chan and Andrew Wheeler explore how firms are doing with embedding TCF and where they should focus their effort now, to demonstrate positive outcomes.

We hope you find this edition informative and, as always, your comments and suggestions for future themes or topics are welcome.

The reality however is that the Treating Customers Fairly ("TCF") agenda remains very much a priority for both the FSA and the industry.

Far from toning down the TCF agenda, the embedding of TCF assessments into the ARROW process is providing a robust challenge to firms. Many received TCF thematic feedback on areas of improvement, with much of the activity being centred on the product lifecycle and in particular, unfair contract terms, key features documents and post sale communications. While firms have made good progress in these areas, the FSA continues its intrusive supervisory approach, maintaining momentum with detailed action orientated letters which require considerable effort from companies to deliver.

Those who invested in the embedding of TCF have primarily remained committed to it for two reasons:

  1. the desire to compare favourably to their peers in order to manage the significant regulatory risk of an overly burdensome relationship with the FSA; and
  2. the commercial imperative which has for some been poignantly reinforced by the recently published Financial Ombudsman Services' complaints data under the transparency requirements.

Where should firms focus their effort now? While 2008 was about implementing TCF management information and culture, 2009 has predominantly dealt with the great effort needed to review and improve product lifecycle processes, and 2010 will see a continual push to demonstrate outcomes.

TCF Management Information ("MI")

In order to give TCF the focus and momentum needed for implementation, it has been necessary for firms to produce a monthly TCF MI pack. This, however, has caused two ongoing problems:

  • the frequency of a monthly report lends itself to a level of detail that obscures the bigger picture and inevitably produces tactical information that is seldom of real interest to the senior executive team; and
  • if the TCF MI stands separate from the wider regulatory and commercial MI, it makes it difficult to demonstrate TCF is embedded in the decision making lifecycle.

Firms must now consider how they should migrate and embed their TCF data into the information which the business and its leadership actually use to deliver the firms' strategy. Having invested so much in TCF MI, this will for many feel like a brave step. However, as the FSA pointed out in March 2008, TCF MI does not have to be separate to business as usual MI and 2010 is the year when this should become a reality.

Performance management and remuneration

In general, companies have succeeded in raising TCF awareness and understanding through internal communications, training and assessments. Staff surveys, not surprisingly, return good results on TCF and this has sometimes been enough to convince the FSA that sufficient progress on the cultural embedding of TCF has been achieved. Much work remains to be done, however, to define and embed measurable TCF behaviours into the performance management and remuneration of staff and, in particular, into executive pay. Many have shied away from this last and most difficult of TCF objectives, even though it is the surest way to embed.

Outcomes focused testing

Firms continue to experience a significant shift in regulatory approach towards outcomes testing via the ARROW framework which, as Hector Sants explained, is also "central to the delivery of 'credible deterrence'." Requests for coalface information from the FSA, such as specific contract terms, financial promotions, sales files and call centre recordings, together with mystery shopping and 'branch visits', demonstrate the more intrusive regulatory style the FSA adopts. This approach is being used to focus on:

  • the industry-wide retail conduct of business themes, such as contract terms;
  • customer communications and advice; and
  • product specific concerns around with profits, payment protection insurance and personal pension transfers.

This enables the FSA to build a far more detailed picture of a firm, which has prompted resurgence for outcome based assurance work aligned to the retail conduct risks.


The FSA's firm specific outcome focused testing of 2009 has for many proved a real test, and for the less well TCF embedded, has required considerable effort to remedy. Key to a balanced regulatory relationship in 2010 will be the monitoring and demonstrating of fair outcomes for customers through management information and assurance reviews. How well a firm is culturally aligned to TCF should determine how actively or passively it tests TCF embeddedness. The more culturally aligned should seek to drive continuous improvement by focusing on three key lines of enquiry on both a systems & controls and outcomes testing basis:

  1. In what elements of the product lifecycle was the firm weakest in 2008 and how have these weaknesses been dealt with in 2009?
  2. What were the key events and decisions of 2009 and how were the principles of TCF used to influence and evidence the decision making process?
  3. How does the firm ensure that the risk of unfair behaviour by staff is not increased by the way it incentivises its people and/or through its leadership and pay and reward?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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