Consumer Duty and the Importance of Testing Consumer Understanding - Davies

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Consumer Duty and the Importance of Testing Consumer Understanding

Consumer understanding is one of the four key outcomes required by the Financial Conduct Authority’s (FCA) 12th Principle – Consumer Duty. With ...

Consumer understanding is one of the four key outcomes required by the Financial Conduct Authority’s (FCA) 12th Principle – Consumer Duty. With the implementation of the new legislation taking place for all new and existing products that are open to sale on July 31st 2023, insurers will be required to demonstrate consumer understanding.

But what does this mean, and how can insurance organisations ensure that they are meeting the required standards?

What is meant by consumer understanding?

The consumer understanding outcome requires all financial businesses to work on a basis of clarity. This means ensuring that all customer communications are not only easily comprehensible and free from jargon but genuinely answer the needs of the customer. This information also needs to be supplied in a timely manner, allowing customers to make fully informed decisions free from obfuscation and misleading information.

This sounds simple enough, but the complex nature of insurance products can complicate the process making testing essential for any insurer.

Methods to test consumer understanding

Insurance firms can test consumer understanding through various methods to ensure policyholders comprehend the terms and conditions of their insurance policies and to ensure that firms can stand behind their communications and processes with confidence.  Here are just a few approaches:

Communications Review and Infrastructure

Insurers need to begin by making sure their internal comms infrastructure is in place. They should know what good customer communication should look like aligned with their requirements i.e.the best language, syntax, and diction to use, and what information is integral to a customer’s understanding of each and every product and service. This means taking into account all forms of customer communication. Not just email or telephone, but digital experiences, gamified features, virtual assistants and chatbots, FAQ pages, and complete web content, including the effective oversight of third-party content and information.  Firms can look to review and simplify their policy documents by using clear, concise language that is easy for consumers to understand and delivered in a way that consumers will easily digest.

Use of Data

For example, customer complaints are one of the best sources of data when you’re seeking to find out how your business is really doing.

Voice of the Customer

Customer satisfaction platforms such as Voice of the Customer (VOC) provide consumers with a simple feedback solution. It’s a way for customers to share opinions while enabling businesses to simply and effectively analyse the data it gathers, providing richer insight from all of your customer interactions and this data can then be used to shape future communications.  Proactive consumer Surveys and Focus Groups can gather qualitative insights and provide an opportunity to delve deeper into consumers’ perspective, identify misconceptions and improve the clarity of policy documents.

Outcome testing

Outcome testing is the process of objectively evaluating whether a procedure produces a described outcome, it can be used in a variety of scenarios and can take a range of forms. It is one of the best ways to initiate a form of quality control in customer communications, as it can help to identify the causation of failures rather than simply revealing that the process is not up to scratch.

Training Programmes and Quality Assurance

The way information is delivered can often be highly influenced by your employees, which is why customer facing staff training will be integral to the implementation of all parts of Consumer Duty. Your teams need to be able to gauge customer understanding through the utilisation of their own skills and knowledge and be able to answer questions accurately and confidently. Regular check and feedback via the Quality Assurance process will be key and the QA framework should be adapted to include outcomes aligned with Consumer Duty requirements.

Customer understanding can be a really difficult area to assess, but it is vitally important. Not just for meeting FCA requirements, but to promote customer trust and loyalty and for creating a durable business that attracts and retains customers on the strength of its transparency and customer service.

If you need support testing consumer understanding for your insurance business ahead of the July 31st 2023 implementation of Principle 12: Consumer Duty and beyond, get in touch with Davies. Our experienced team is waiting to help.

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