Address by Assistant Director General for Consumer Protection, Bernard Sheridan, at the Outsource Services Group Conference

29 September 2010 Speech

Insurance – The Customer Experience

Good morning everyone.

It is hard to believe the changed environment that both consumers and the insurance industry face in Ireland when compared to three or four years ago.

Many consumers are struggling with reduced incomes and many businesses are finding it difficult to survive. The insurance industry has suffered from the economic downturn and while it has not gone through the same turbulence as the banking sector, it is facing a very challenging environment.

What does this mean for consumer protection? Should we slip back to previous times when consumers did not get the service required from a professional industry? I don’t think so. I believe it is even more important now that all financial service providers build up the trust of consumers which is in everyone’s interest, both consumer and industry.

Before I look at some of the key elements of consumer protection for insurance customers and the work we are doing, I thought it would be useful to update everyone on developments with reorganising the Central Bank and Financial Regulator.

We now have a single unitary organisation – the Central Bank of Ireland – with responsibility for both central banking and financial regulation. The Central Bank is responsible for both the supervision of individual firms and the stability of the financial system. It has six key objectives one of which is the proper and effective regulation of financial institutions and markets, while ensuring that the best interests of consumers of financial services are protected.

The unitary board is chaired by the Governor. As part of the restructuring the formal position of the Consumer Director has been removed and the consumer information and education roles previously undertaken by the Financial Regulator have been transferred to the National Consumer Agency. The new legislation also provides for the establishment of a consumer advisory group to advise on our strategy and work. While there has been some restructuring in the consumer area, the protection of consumers remains a key priority for the organisation.

The Central Bank published its three year strategic plan in July this year. The strategy in relation to regulation is based on the need to develop and implement a new model of regulation, an assertive risk-based model, underpinned by a credible threat of enforcement. We need to be better at not only identifying risks but also in challenging firms on the risks they face and ensuring the risks are mitigated as far as possible.

Over the next three years we intend to build on the consumer protection framework which is already in place. Mortgage arrears have become a significant problem and we are devoting resources to strengthening the existing Code on Mortgage Arrears and contributing to the work of the Government Expert Group. We aim to have the revised Code on Mortgage Arrears finalised before the end of the year.

Unfortunately overcharging cases continue to arise and we have reviewed our approach to ensure that future cases will be handled more expediently. We will continue to devote resources to monitoring and enforcing compliance with the various consumer protection requirements through a combination of themed reviews and individual firm inspections. We are also strengthening and developing our enforcement capacity within the organisation.

The transposition of a number of European directives including the Consumer Credit Directive and the Payment Services Directive has introduced a broader consumer protection framework and when taken with the Markets in Financial Instruments Directive means that much of the framework is based on European rather than domestic law. We are also working on putting the current IBF voluntary switching codes for current accounts on a statutory basis in response to the European Commission’s request for competition initiatives to be introduced across the banking sector.

Our priorities on the consumer side include building a strong engagement model with other consumer bodies including the Financial Services Ombudsman (FSO), the NCA and MABS.

The FSO is a vital source of information for us in respect of individual firms as well as sectoral issues. As part of the new regulatory model we aim to develop this further.

The NCA is now the primary source for consumer information and it is important we ensure that there is a good exchange of intelligence so that both organisations can deliver on their mandates.

The role of MABS is becoming more important in society. They are at the frontline in dealing with consumers in difficulty and we need to ensure their experience informs our work.

Two of the key components of consumer protection have been the Consumer Protection Code and the Minimum Competency Requirements (MCR). We should not understate the significance of what they have achieved for consumers. Together they set the minimum standards for how consumers should be treated.

The MCR seeks to ensure that everyone who is selling financial products or who is dealing with complaints or insurance claims are qualified and have the expertise to properly deal with consumers. There is clearly a cost to firms in both educating and training staff but the benefits are also significant.

I believe the introduction of the MCR represented a key milestone in the development of the financial services industry and put us ahead of most of our European neighbours. The Continuing Professional Development element ensures that the minimum standards are maintained.

Our key role is to ensure that regulated firms are meeting these minimum standards. Earlier this year we carried out 9 on-site inspections on compliance by life insurance firms with the ‘grandfathering’ provisions and register maintenance provisions of the Minimum Competency Requirements.

Overall, we found that the insurance firms have comprehensive procedures and processes in place to monitor ongoing compliance with the Requirements. At the implementation of the Requirements, all but one firm undertook an analysis of each role within the firm to determine whether they fell within scope of the Requirements.

When the relevant roles were identified, the status of staff members involved in those roles was reviewed to determine whether they fell within the category of “in transition”, “qualified” or “grandfathered”. Generally, it was found that most firms encourage their staff to gain the relevant qualifications rather than rely on grandfathering.

Firms must ensure that all staff, and not only those involved in sales, who are subject to the MCR and whose status requires them to complete CPD, are monitored on an ongoing basis to ensure that the minimum amount of CPD is being completed and that the CPD is relevant to the staff member in question.

In the course of the inspections we noted a number of instances where due to poor record keeping, it originally appeared that individuals had not completed the minimum number of CPD hours. Firms were reminded that their records must be kept up to date, and where anomalies exist in CPD records, these must be investigated and addressed.

We considered that it was timely to carry out a review of the Minimum Competency Requirements four years after its implementation. We have reviewed the issues that have arisen since the implementation of the Requirements and we are proposing to make a number of changes.


We are considering phasing out the grandfathering arrangements and are proposing that this would take place over a period of time. A number of issues have arisen since the introduction of the Requirements in relation to the grandfathering process. There appears to be confusion in the industry regarding the process, the extent of the activities for which an individual may be grandfathered and the activities a grandfathered individual may undertake. In order to ensure a consistent standard across the industry, we propose phasing out the grandfathering arrangements over a four-year period. We would expect that all those providing services that fall within the scope of the Requirements would hold a relevant recognised qualification by 2015. I can understand that for some people who have been in the industry for some time that this will be a challenge, but we believe it will be good for the industry in the longer term as it will ensure everyone is up to a minimum standard that has been verified by obtaining a qualification.

CPD hours

We also propose changing from the current three-year CPD cycle to an annual requirement. The proposed new annual requirement of 15 hours will be made up of formal hours only.

Individuals may be grandfathered for some activities and hold a recognised qualification for other activities. At present, a CPD requirement of 60 hours over a three-year cycle applies if an individual has been grandfathered for all retail financial products. However, an individual grandfathered for some activities and holding a recognised qualification for others may be required to undertake up to 120 hours CPD over a three-year cycle. Under our new proposals, this would become 30 formal hours each calendar year. Individuals may reduce the number of hours to be completed overall by undertaking CPD on common areas, for example, legislation, regulation or economic issues.

Concerns have been expressed in relation to the requirement to have the Register publicly available. We now propose that firms must either make the Register publicly available or provide each accredited individual with a Certificate on the firm’s stationery setting out the areas where they are deemed competent. Consumers must be informed that they may request sight of the Register or the Certificate.

Based on the findings from the inspections, consumers have not been requesting confirmation of the competency of the individual dealing with them which is disappointing. I believe this relates to the fact that they are not aware that staff must be qualified and that they have a right to request this confirmation. More transparency around this should help to build consumer confidence in the industry.

The second key initiative for consumer protection has been the Code. All of the provisions of the Code came into force in 2007. Since then we have carried out a number of reviews relevant to the insurance industry. The findings of these reviews, some of which I will now outline, have fed into our proposals for the review of the Code.

A. Suitability of Investment Products Sold to Elderly Consumers

In 2009, we carried out a themed inspection on the Suitability of Investment products sold to elderly customers. We had concerns that the risks associated with life assurance products, particularly those which have an investment element were not being explained to consumers.

We were also seeking to gain a better understanding of the processes and procedures governing the sale of life assurance investment products to these customers.

Six on-site inspections of insurance undertakings were carried out which found that:

  • Not all financial providers were offering the opportunity to have a third party present at the sales meeting. We recommended to all firms the importance of offering this option particularly in cases where the customer has no prior investment experience.
  • Customers who fall under the definition of elderly customers have a specific need for access to an emergency fund that would cover any expenses that they may incur, such as medical expenses and long term care expenses. We recommended that firms make reference to the need for emergency funds when completing their factfinds and reason why letters.
  • Term of Investment Products

Some guaranteed products are guaranteed on a set date only. They may also be subject to early encashment penalties which further erode the encashment value.

We recommended that sellers of such products ensure the consumer can afford to leave his/her funds invested for the period of the time required under the guarantee and that the consumer has sufficient emergency funds that they would not have to draw on the product before the date of the capital guarantee expires.

  • Issues on maturity of investment products

We recommended that firms ensure that, where the investment product has a fixed term or a specific guarantee term, that they contact the customer giving the customer ample opportunity to consider the options that are available to them prior to the guarantee anniversary being reached. Customers should not be placed in a position that they will lose their capital secure guarantee on their investment by failings of firms to remind the customer of the limited guarantee period. Firms should also ensure that the customer’s investment is not defaulting into an unsecure fund after the guaranteed period has been reached without prior discussion and agreement with the customer.

  • Post sale compliance monitoring

It was noted during the on-site inspections that some firms carry out some form of post sale monitoring on the sale of their products. Some firms have comprehensive and detailed practices which relate specifically to the sale of investment products to elderly customers while other firms carry out monitoring on a random and generic basis.

We encouraged all firms to implement product specific post sale monitoring, especially in cases where the customer falls under the definition for elderly or vulnerable customers. This type of monitoring is a useful tool to ascertain if the elderly customer understood all the features of the product they were investing in and were aware of the risks associated with the product.

  • Classification of investment risk

We strongly encouraged firms to look at how they classify investment risk profiles to ensure that the customer attitude to risk corresponds with their individual circumstances and that customers are guided toward a suitable risk category of product. Firms should be careful that terms for investment risk are well understood and are not subject to misinterpretation. In particular firms should be careful about the designation “low risk” as some customers may interpret this to mean “no risk”.

B. Payment Protection Insurance (PPI) – Review of Claims Handling

We undertook a review of claims handling procedures for payment protection insurance policies (PPI) during 2009. The purpose of the review was to seek to identify possible claims related issues before they arise and assess whether reasons for declining to pay out on policies were appropriate.

Six on-site inspections were carried out, and the following issues were highlighted:

  • Where claimants have satisfied the terms and conditions of the policy, we found the insurance companies had consistently carried out the claims handling process in an efficient and fair manner.
  • We noted to the firms the importance of ensuring that the consequences in relation to claims handling are fully explained to consumers at point of sale, so as to avoid a situation where a policyholder has their claim declined. This was evident following an interpretation of the most common reasons why claims were declined.

The highest number of declined claims for

  • illness/disability related claims were due to claimants’ pre-existing medical conditions,
  • and for unemployment/redundancy related claims were due to employment criteria not being met by claimants.
  • Some claims were delayed pending verification from third parties such as doctors and previous employers. Firms were reminded that consumers should not be disadvantaged due to excessive delays on the part of third parties in supplying claim related information, and regular follow-ups should be made with the consumer.

C. Renewal of Motor Insurance Policies

We also undertook a review into the renewal of motor insurance policies to ensure compliance with the 2007 Renewal Regulations and the Consumer Protection Code.

Nine firms, representing the largest firms in terms of motor insurance, were inspected by the Financial Regulator in relation to motor insurance renewals. As part of this review, the written procedures in place for renewal of motor insurance policies were examined for policies taken out both directly with the insurance undertakings, as well as those via the intermediary channel.

It was encouraging to find that for the most part, firms are processing motor insurance renewal documentation in line with the requirements of The 2007 Renewal Regulations. However, there were a small number of cases where the 15 day rule for issuing renewals had been breached. In addition, there were instances where the actual documentation issued was not in compliance with the Regulations.

D. Home Insurance Claims Processing

We inspected the eight largest firms in terms of the number of claims processed for the inspection into home insurance claims. The firms chosen were responsible for over 98% of the claims processed during the review period.

The main finding of the home insurance inspection was that while the majority of claims are processed in line with the requirements of the Code, there were a small number of cases where claims cheques were not issued to claimants within 10 business days. The Code requires that firms pay all claims to the claimant within 10 business days of an agreed settlement as it is important for consumers payment is made promptly.

We also found that some firms are moving to a process where claims can only be settled using the firms’ approved repairers. Firms are expected to satisfy themselves that their use of approved repairers is consistent with the Code and where firms intend using approved repairers, they must ensure that consumers are aware of this at the time of entering into an insurance contract. There were also concerns that as the claimant is not an expert, a claimant should not have to sign a document for the insurer attesting to the quality of the work completed or to give a view on whether it was completed in accordance with the scope of the work, as per the firms’ specifications. Firms were advised to make it clear to claimants that where the firm appoints a repairer, the firm is ultimately responsible for the work undertaken.

We also recommended that firms write to claimants when a payment is made to builders or other similar third parties, to inform claimants of the amount paid in respect of their claim, as this could impact on their future premiums.

Code Consultation Process

We are currently preparing a consultation paper on proposed changes to the Consumer Protection Code. We aim to issue it later in October to gather views on a wide range of issues as well as more minor amendments which need to be implemented as a result of our experience with the Code since its introduction.

Industry will have until December to make submissions and we will spend the first quarter of next year working on the draft Code. We aim to have finalised the process and published the revised Code by the end of June 2011.

Our overall aim is to strengthen it in some key areas by being more prescriptive while at the same time clarifying issues which have arisen to ensure there can be a clear interpretation of the requirement.

Code Issues for Consideration

While we have not yet finalised the draft paper and obtained the necessary approvals I can give you some ideas on what we are working on at the moment.

The final document may differ in some respects from what I intend to say but at least you can get a sense on the key issues. We have to be cognisant of the possible overlapping with the MiFID Directive when introducing new requirements. It may be the case that some of the new measures will represent what we expect as best practice for MiFID product sales where MiFID is silent on what is required.

Firstly, for sales to elderly/more vulnerable consumers, I have already outlined some of the key findings from the themed reviews conducted by us. Our aim is to be more prescriptive in the Code in relation to what additional measures need to be in place to further protect these consumers.

Secondly, the sales process involves a significant amount of verbal interaction with the consumer. It is very difficult both from the firm’s and regulators perspectives to regulate this element of the process. We are proposing to introduce measures to help monitor and control what is said during the sale.

The issue of whether or not products should be regulated has arisen a number of times. We do not believe outright product regulation, such as a pre-approval process by the Central Bank for new product launches, is the answer as this risks stifling innovation and adding to costs. Also product producers should remain fully responsible and liable for the products they produce. However, product disclosure could be more straightforward. Currently for investment products there are various risk warnings disclosed including the fact that the value of such investments may go down as well as up. Is this sufficient when there is no reference to whom such a product may be suitable or not.

Also, we will seek to ensure that firms have very robust procedures for new product launches that ensure senior management sign off on the potential risks to consumers. In this respect, we are considering the responsibility of product manufacturers particularly for a product’s defects and inadequate disclosures and how this responsibility overlaps with those of the distributors. Also should there be post-launch reviews of products to assess if the product is meeting the needs of the target audience?

The Code already introduced a series of measures to improve transparency for the consumer from General Principle 6 (making full disclosure of all relevant material information, including all charges, in a way that seeks to inform the customer), to the obligation to give a consumer terms of business which includes a description of the services the firm provides) to a whole chapter on advertising. We have carried out some research and have conducted a number of reviews in respect of credit cards and personal current accounts. The findings from these will be reflected in the Consultation Paper.

We have also conducted work over the last couple of years on remuneration and transparency, particularly in relation to intermediaries, where we committed to updating the Code. We believe it is important that consumers are aware of how intermediaries are paid and that if they wish to have the detail this should be available to them.

Consumers can also be inundated with information and therefore it is important that they have the information they need at the time they need it. In the context of personal injury claims, for example, we are examining again what key information claimants should be provided with regarding The Injuries Board. We are also examining some advertising practices where claims are made of certain savings on insurance premium when compared to competitors. However, the detail is included in the small print rather than the main advertisement.

The Code has restrictions in place regarding unsolicited contact. However they currently do not apply to the sale of protection policies. The selling of any financial product on a cold calling basis particularly door to door causes me concern not only for the consumer but also the wider reputation of the industry. As I have already said it is very difficult to control the verbal interaction during the sales process. We are considering proposing additional measures to try to further protect consumers in this area.

While the incidence of overcharging has not been as prevalent as in previous years it remains a concern that we continue to see cases arising. We have introduced tighter timescales for the resolution of cases when they arise and this will be reflected in the revised Code. We are also considering what steps product producers should be taking post the launch of new products to check on how the charges are being levied. While the Government Expert Group is examining the issue of Mortgage Arrears we are considering introducing some of the relevant recommendations from that Group as well as dealing with some other related issues which have arisen from our themed reviews in respect of other personal debt.

Overall, the Code appears to be working well for consumers and there is a good level of compliance. The proposed changes I have mentioned should help improve the lot for consumers without necessarily a significant increase in costs for the industry.

However, we will continue to monitor compliance to ensure standards are maintained. Ultimately, we all should have the same objectives to protect consumers and to ensure the service they receive is of the highest standard.