The Consumer Duty came into effect for the UK on 31 July 2023. It’s called the Consumer Duty but it applies to all insurance customers other than large risks or group policies. Micros and SMEs are consumers in the context of the Consumer Duty. The Duty applies across the distribution chain so coverholders, MGAs, retail brokers that means you!
What about for claims TPAs? Claims handling is not a regulated activity in the UK, its an outsourced activity of the insurer. It applies to TPAs as it applies to the principle insurer. So no, but yes.
Insurers will need to demonstrate that their delegated authorities are treating their customers in line with Consumer Duty so we developed Otter Audit’s nine tests for auditing Consumer Duty.
We have even turned it into a noughts and crosses desk game. Playing noughts and crosses in meetings could now be worth hours of CDP!
Not an FCA requirement however as part of the audit we document a register of the product distributed under the contract. This will be reconciled against product governance materials provided by the manufacturer. The file review will consider the appropriate granularity of the segment of the target customer.
An original requirement of Consumer Duty whereby a board member, preferably a NED, was required to be designated the Consumer Duty Board champion. This was rolled back by the FCA in February 2025. The responsibilities of the champion still exist in the firm however this does not need to sit with one named person. We wonder if this responsibility will reappear through the SMCR.
A requirement before the Duty came into force, manufacturers are required to perform value assessments and produce information for distributors about that process. We call this distributor information. Our audit will consider whether each reviewed file was sold in line with the assumptions described in these documents. Assumptions such as the fees, premium finance and broker network.
Manufacturers must document a distribution strategy appropriate for the target market whilst distributors should identify the intended distribution strategy. Best practice is the manufacturer providing the distributor with the strategy as an extra part of the distributor information. Our audit will test, through the file review, that the products are being distributed in line with the documented strategy.
Often not described in the DA contract but a strong quality assurance program can be the difference between a good firm and great one. A firm’s ability to self-diagnose can turn weaknesses into strengths. A strong QA process can significantly reduce the number of audit findings. Pitfalls include being too narrow or specialised in scope by focusing just on underwriting or compliance rather than the full range of behaviours that can affect customer and business outcomes such as identification of complaints or vulnerable customers.
These days it is expected that decisions are data driven. The evolution here from conduct risk MI to the Consumer Duty MI is that the reporting is at the product level and the FCA make several references in the final guidance to expecting to be provided with the data on request. We will test the readiness of the firm to produce that data for the FCA by requesting and reviewing the scope of the data. A trend we have seen is that QA outcomes are missing and the MI is overly aggregated so as lose relevance.
All great businesses have processes that identify failings, corrects them and measures the effect of those changes. These are feedback loops. It's how the firm identifies harmful effects on customers. This can be done through QA, complaints or sales data. A firm then takes that data and turns it into MI which is understood at the highest levels, before making the course corrections needed to improve products for their customers. Culture eats change for breakfast and culture is contagious. Strong data driven feedback loops from the top of a firm can challenge poor culture and lead to positive outcomes for customers and the business.
An Otter Audit term that cuts to the core of the reason why all this is happening. Does the file review demonstrate that the product has been matched to the target customer? And if not, does the file review demonstrate that the product has been matched to a customer who can derive value from the product? Each reviewed file is tested against this criteria. Where a file fails the test, the holistic system is reviewed to understand how the auditee would identify this in their oversight framework.
Firms must avoid causing foreseeable harm to customers. Harm is considered foreseeable where a prudent firm acting reasonably would be able to predict or expect the ultimately harmful result of their action or omission in connection with the product or service. Identifying foreseeable harm is a measurable benefit of using Otter Audit as we have a wide range of experience of firms outside of an insurer’s usual portfolio.
An example of foreseeable harm that we have seen occurred at a coverholder where depending on what phone number the customer calls, the customer is sold a particular product that may be more expensive or provide less cover than another product on offer by the same team at the coverholder through a different phone number.
That summarises our nine tests for Consumer Duty. We will approach a Consumer Duty audit with our usual blend of independent professional cynicism, and personable and informed support.
In general, the audit will consider how the activities of the coverholder supports the delivery of the customer’s and insurer’s financial objectives across the distribution channel. This is described in the diagram below.
