The influential Treasury Committee has recommended that the UK insurance regulator be put under a ‘have regard’ obligation for financial inclusion when it makes rules. It would be a small yet significant step towards addressing financial inclusion, were the Treasury to accept the recommendation.
I see it as a small step because it doesn’t require the FCA to do much. They just have to be more transparent and give more consideration to something they say is already on their radar. Sure, there’s data collection and reporting, but given how the FCA often talks proudly of their data capabilities, this doesn’t seem like a radical obligation to put them under.
Here are the Treasury Committee’s recommendations:
“90. The FCA should make every effort to ensure that it is not designing or implementing regulation in a way which could unreasonably limit the provision of financial services to consumers who might benefit from them. When placing new requirements on firms, the FCA should consider not only the impact on consumers and businesses, but also the impact on those who might be prevented from accessing financial services as a result of those new requirements, or who might find themselves accessing services on inferior terms. We recommend that the Treasury should require the FCA to have regard for financial inclusion in its rule-making, but not to make changes relating to financial inclusion to the FCA’s objectives.
91. We welcome the clearer acknowledgement that the FCA is working to support financial inclusion, and we would urge the FCA to continue to do so. The FCA should provide an annual report to Parliament on the state of financial inclusion in the UK and the Treasury should consider putting this report on a statutory basis. This report should also include a summary of areas where the FCA’s work has supported financial inclusion or future work which could impact on financial inclusion; and any recommended additional measures lying within its area of competence and which could be taken by Government and other public bodies to promote financial inclusion.”
What Now for Insurers?
Whatever outcomes this recommendation generates, it looks like insurers will need to take a closer look at how they’re handling financial inclusion. That’s because there will just be more attention being given to it. And that attention will be more questioning, occasionally more challenging, than it has been so far.
That re-evaluation will need to be more than just checking that existing reporting is robust. It needs to start with product design and then move on to the strategies for marketing, distribution and pricing. Each of these has an influence on your firm’s financial inclusion footprint.
And even before that, it would be wise to check that your working definition is compatible with that used by the Treasury Committee – “individuals, regardless of their background or income, having access to useful and affordable products and services.”
I’ve been doing some client work recently looking at the shape of the fairness question hanging over a lot of what the sector is doing, and what this means going forward. What is clear is that the vital step from recognising that some sort of problem exists around financial inclusion, to starting to tackle it in a systemic way, that vital step is about the availability of relevant data.
Without that data, there’s a danger that the problem will be shaped and measured according to whoever has the most power to put behind their narrative. That changes when the data becomes available and starts to give shape to the scope and depth of financial inclusion.
A Tectonic Issue
So while you might see this as just a ‘more reporting’ issue, it in fact represents something much more – as I said earlier, a small yet significant step. Financial inclusion is something that is receiving attention because of what I refer to as a tectonic issue for insurance, and that issue is fairness. What we’re seeing here is part of a shift towards a more multi-dimensional view of fairness. And it presents the sector with a choice: to go with the flow of that shift, or resist it through lobbying and the like.
The problem with the latter approach is that tectonic issues are ultimately difficult to resist. That’s because their impact is so pronounced over a range of linked situations. The way forward that I’ve been researching is something that I expect to see published later this year.