The UK Parliament’s Treasury Committee has recommended to the Treasury that the regulator be required to ‘have a regard’ for financial inclusion. This is their specific recommendation…
“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.”
So if the regulator is to have a regard, then in order for it to do so, insurers must do the same or something similar. For the regulator to know that something is not limiting ‘the provision of financial services to consumers who might benefit from them’, it needs to have data about what consumers are being served, how they are being served and by whom. The landscape of provision for financial inclusion is going to become much clearer.
So how might an insurer organise its attention to financial inclusion? Many of course already are, and that’s good, although I would still urge them to have a think about how well it’s embedded into how their firm works. To do that, I want to highlight three dimensions along which they should look.
Firstly, this is a consumer thing. Those “who may find themselves accessing services on inferior terms” are just as much consumers as any other segment. Sure, they’re different in some ways, but then, what consumers aren’t. So an insurer’s work on financial inclusion needs to be tied in with their distribution and customer strategies.
Secondly, this is a fairness thing. It touches on fairness of need and fairness of access. If you’re familiar with John Rawls’ work on fairness, it will remind you of his difference principle. This says that if social and economic inequalities have to be lived with, they’re only acceptable if those differences are configured so as to of the greatest benefit of the least-advantaged members of society.
Hopefully, the pricing review will have caused many insurers to think more strategically about fairness. Their work on financial inclusion needs to be tied in with this.
Finally, this is a product governance thing. Sure, it’s packaged as a ‘design of regulation’ thing, but the consideration of financial inclusion in regulations will undoubtedly trickle down into firms having to consider financial inclusion in product design and monitoring.
So who should lead on this within an insurer? The responsibility for this could involve marketing, distribution, product governance and pricing. If I was to choose one, it would be marketing. They can draw on their experience at defining and managing target markets. They can also bring existing relations with those three other types of manager to the table.
Perhaps the starting point then is to look at role descriptions and performance management. Are the right accountability mechanisms are in place? How up-to-date are they? And if this seems to be a bit challenging, then perhaps some training in financial inclusion is needed. I wonder how many insurers are providing that already.
The Near Future
Let’s look a few years into the future. The FCA is being asked to “provide an annual report to Parliament on the state of financial inclusion in the UK”. And in that report will be developments and outcomes that shine a brighter light on things like the poverty premium. And like any good report, it will cause questions to be asked and answers to be delivered. This is what I meant by this being a stone that will gather moss.
Insurers should therefore expect a growing level of scrutiny on financial inclusion. So how then should they respond? Well, unsurprisingly, I would recommend that they handle it on a proactive way, rather than a reactive way. They need to be writing a clear narrative on this, rather than wait until one is thrust upon them.