The long running presence of a regulator is one reason why insurance, and financial services more widely, does not have a consumer advocate at present. The intention was for the regulator to look after consumer interests, putting them first as matter of course. And twenty one years on, the regulator is still there, but showing increasing signs of not understanding, let alone advocating for, the consumer interest.
Before looking at the detail of why a consumer advocate could be needed, and how it might work, it’s worth looking first at the impact it could have. Here are four ways in which existing statutory consumer advocates make a difference:
- as they receive state funding, consumer advocates are better resourced than consumer groups. This means they are more active, addressing more issues and able to do so more thoroughly.
- consumer advocates are better positioned to make their case heard in key policy and regulatory debates.
- they often have enhanced data gathering powers, allowing them to draw data from the sector in accordance with their concerns.
- they are able to run campaigns designed to raise issues around particular sector practices. This may even extend to conducting naming and shaming exercises.
Combine this with data gathering and analysis capabilities, and the outcome is a reconfiguring of power relations within the market. Gone will be the days when the regulator and sector trade bodies sit down together and define both the issue and the response. And gone will be the days when the sector can just sit on data and refute the issues upon which that data could shine a light.
Is One Needed for Insurance?
Consider this statement by Charles Randall, until last year the chair of the Financial Conduct Authority. Writing in The Times last year, his view was that…
“Now, more than ever, financial regulation needs to work for the whole country. Financial businesses or their lobbyists met Treasury minister nearly 200 times last year. In the same period Treasury minister met consumer organisations fewer than a dozen times. UK Finance and the Association of British Insurers (banking and insurance lobby groups) were granted ten times more meetings by ministers than Citizens Advice.”
The extent of the imbalance of influence with policy makers is striking. In fact, it resembles less of an imbalance and more of a failure of the system. What Randall is saying between the lines is that the regulator’s job was made harder by it. He’s implying that the regulator came under more pressure from policymakers as a result of that imbalance / failure.
Is this just sour grapes from a regulator made to do things it didn’t feel were appropriate? I don’t think it is. In fact, it feels more like the tip of an iceberg. I say this because on several occasions (more here for example), I’ve stated that I think the regulator lets itself be too influenced by the sector, which may be good for insurers in the short term, but not in the mid to long term.
What this seems to add up to is a ‘head of steam’ building over the level of influence that trade bodies and their advisers have gained with regulators and policy makers. The question then is what will cause that head of steam to produce a loud whistle? Where might the trigger lie?
The Trigger for a Consumer Advocate
Last month, Citizens Advice issued a follow up to its March 2022 report on the ‘ethnicity penalty’, about discriminatory pricing in car insurance (more here). After listening to the FCA and the Government’s Centre for Data Ethics and Innovation, Citizens Advice decided to rely on the FCA’s new consumer duty that comes into force this year.
Let’s look at how these developments draw lines into the near future. I expect Citizens Advice to sit back and watch how this ‘the consumer duty will sort it’ works out. They will also continue to do their own data analysis and compare this with outputs and reasonings from insurers and the regulator. I believe that if they conclude that the consumer duty has not had the impact that they were promised it would have, they will push to be granted consumer advocate status for at least the insurance sector, possible just in personal lines.
It's All About Outcomes
How likely do I think this is? I believe that the consumer duty will fail to deliver the outcomes that the regulator hopes it will have. And I suspect that the regulator will fail to acknowledge this, given that it is an initiative so central to their consumer strategy. There will be talk of more time being needed for the changes to have an effect, for consumers to feel the impacts, for firms to adapt to what they’re learning.
At the same time, the regulator will try to move attention over on the competition measures that it feels are just as influential for consumer outcomes. That’s because this is an area of work the people and culture at the regulator are much more tuned into. Unfortunately, the idea that ‘the market will fix things’ is gaining less and less traction nowadays.
Meanwhile, I expect the micro data gathering put in place around discriminatory pricing by Citizens Advice to show that it remains present and probably worsening. And at that point, the ball will be in their court, whereupon, to continue the tennis analogy, they will try and serve an ace, to gain consumer advocacy status for at least personal lines insurance, perhaps SME business as well.
Their argument will be that the regulator has not been robust enough with firms and that the consumer duty is not being applied far enough up the influence chain. Will their views carry? I think there’s more chance of that than the sector would like to think. Remember how only a few years ago the Treasury Committee warned the FCA about being too trusting with insurers on discriminatory pricing. I haven’t seen much change since. In fact, the regulator seems to be even closer to the sector than before.
Citizens Advice is not the only organisation able to become a consumer advocate, but it is invariable in a strong position when an appointment is being considered. It is already the statutory consumer advocate for the energy sector and is likely to soon be appointed for the telecommunications sector. If you bring together their acknowledgment that bias in AI is complex with their agreement to ‘see what the consumer duty can achieve’, and then add in the organisational demands currently being made upon them, a three year horizon for a move to become a statutory consumer advocate for personal lines insurance is not unrealistic.
Transparency will be revolutionised as a result.