In May, the Financial Conduct Authority issued a ‘Dear CEO’ letter ahead of the July deadline for the consumer duty to be extended to closed books of business.
It noted the particular challenges facing life offices and highlighted five key themes that firms should be considering:
- gaps in firms’ customer data;
- fair value;
- treatment of consumers with characteristics of vulnerability;
- gone-away or disengaged customers; and
- vested contractual rights.
Data is recognised as being especially difficult for closed business. The products and services are often quite historic and rely upon legacy systems.
There is often a history of technical debt that has never been repaid, as products were created quickly to accept new business but ongoing servicing functionality was not properly built.
As a result, customer data may be incomplete and outdated, making it difficult to assess customer outcomes.
Other factors can compound customer engagement. Some firms have subdivided closed books and marketing permissions may not exist across legal entities.
While some firms have restructured to rely upon legitimate interest to contact customers, the FCA and the Information Commissioner's Office noted that many firms are too cautious in engaging with customers.
Where contact details are out of date (and email addresses may never have been obtained) firms will rely upon external databases and matching routines before even starting to be able to engage with customers and/or their intermediaries.
Customers may be reluctant to engage with firms they do not recognise, so incentives in the form of financial wellbeing tools can be especially valuable.
As the FCA says in its 'Dear CEO' letter: “Firms should proactively challenge themselves to improve both the core data and the flow of data into monitoring. For example, firms should question if data issues are preventing them from providing the right support to vulnerable customers.
"They should also ask if data not being available for monitoring could lead to harm to groups of customers that would not be identified through the regular monitoring. Some of this may require longer-term strategic investment."
Tapping into open finance
Offering an open finance tool to customers will help them understand the products they have (across providers), how they are doing and what action they could take to improve their outcomes.
It creates a new customer dialogue by consent that is more relevant and useful than just an administrative contact.
According to Ofcom, 94 per cent of adults have access to the internet at home and 76 per cent of adults already use apps or sites for wellbeing.
This represents an opportunity for firms to not only use online tools to re-engage with consumers but also to gain customer primacy as the key provider.
Open finance can be used to gain insights into suitability, vulnerability, affordability and eligibility for alternative products.
A personal consumer duty dashboard can be created, analysing all connected accounts (pensions, loans, house and car valuations, current accounts, credit cards etc), the providers’ and third-parties’, into a single, aggregated view.
