The Financial Conduct Authority (FCA) has criticised UK firms for their treatment of closed-book consumers and published its finalised guidance on recommended actions for treating them fairly.

“Our previous work in this area uncovered poor practices at some firms across the sector,” said Megan Butler, the FCA’s executive director of supervision – investment, wholesale and specialists division. “We are not introducing new rules, but this guidance will help firms know what we expect of them to ensure their customers are treated fairly going forwards.”

The FCA aims to ensure that closed-book customers, who have life insurance products that are closed to new business, are treated fairly and do not receive less attention than customers who have recently taken out a new product.

“The regulator’s guidance stated closed-book customers should receive clear and timely communications about policy features at regular intervals and at key points in the product life cycle that allow them to make informed decisions. This should include information about the performance of the product, its value, and the impact of fees and charges,” wrote Damian Fantato in Financial Advisershutterstock_68607844.

This may sound simple enough. But providing regular communications, ensuring policy values are fair and proportionate, and allowing for customers to move from products that are no longer meeting their needs will require a coordinated approach across multiple systems for many providers.

Such an approach first requires a review of processes and business practices across the closed books estate – the cost of compliance will certainly be a concern. For providers with multiple closed portfolios and closed systems, such an exercise will be demanding and time-consuming.

What is the key to closing the book on ‘poor practices’, while lessening the financial and time-related investment?

The first step is identifying the scope of ‘change’ required, along with the associated costs. For many providers, it will be more expedient and cost-effective to embark on a consolidation programme that will bring ALL the closed portfolios together onto a single system.

This will reduce IT and operational costs, while improving the closed-book customer experience to be compliant with the new FCA guidance.

In the past, such a strategy was thought to be high risk and costly. There is plenty of evidence showing that consolidation is the right approach for firms who see their closed portfolios as valuable assets to be administered more efficiently, whilst still focused on improved customer fairness. These programmes can be delivered with a return on investment within three to four years, making the business case very attractive.

Consolidation programmes deliver a number of benefits, including:

  • Lowered costs – IT and operational
  • Greater processing and reporting consistency
  • Unified customer view, enabling strategies to be deployed around retention and holistic communications
  • Reduced operational risks associated with poor legacy IT knowledge
  • Less reliance on supporting satellite systems
  • Increased automation and the ability to drive digital engagement

With firms expected to rapidly improve their closed books practices, the time to start consolidating is now.

  • annuities and life insurance
  • Closed Books
  • compliance provisions
  • consolidation
  • cost-effective
  • Customer Experience
  • insurance providers
  • Operational risk
  • regulation
Stuart Hayman

Stuart Hayman Stuart Hayman currently serves as a Business Consultant for Sapiens Insurance Practice and is a successful executive with over 25 years of experience in Life and Pensions. His most recent roles have focused on sales and business development, new contract negotiation and solution design.