While the Conduct of Financial Institutions (COFI) Bill and Omni-CBR (Conduct of Business Return) will revolutionise the financial services sector once it becomes effective, it’s not the first time an industry has had to adapt to significant regulatory changes.
In the past several years, the insurance sector underwent similar changes with the enactment of the Insurance Act 18 of 2017 and the Policyholder Protection Rules (PPR) and the implementation of a Conduct of Business Return (CBR) for insurance product providers. As is expected with COFI and Omni-CBR, these regulatory changes in the insurance industry put Treating Customers Fairly (TCF) at the forefront, requiring insurance providers to record and report data in CBR format to demonstrate customer outcomes.
By analysing the recently released Insurance Ombudsman 2023 Annual Report, focusing on the Ombudsman for Short-term Insurance’s (OSTI) findings, we can extract valuable lessons for FSPs on TCF and how the regulator will use data to identify trends based on outcomes in the industry.
Background on the report
Earlier this month, the National Financial Ombud Scheme (NFO) – the new ombud scheme formed through the amalgamation of four previously separate ombud schemes: the offices of the Banking Ombud (OBS), the Credit Ombud (CO), the Long-term Insurance Ombud (OLTI) and OSTI – released its Insurance Ombudsman 2023 Annual Report. While the report primarily examines complaints handled by the Insurance Ombud, FSPs can glean valuable insights on the impending impact of COFI and Omni-CBR, particularly concerning TCF through a view of consumer data and complaint management. To simplify matters, we focus on the findings by the OSTI in this article.
TCF takeaway
In its report, the OSTI categorised complaints into TCF outcomes (pg. 42), identifying which standards were not met. An interesting finding is that TCF Outcome 1 emerged prominently. According to the report, 48.48% of complainants expressed doubts about whether their insurer prioritised fair treatment of policyholders as central to their culture. This highlights the critical importance for FSPs to evaluate how clients perceive their adherence to TCF Outcome 1 and to take proactive steps to address any discrepancies. Improving staff training on customer relationships and communication practices can be effective strategies.
Overall, the report indicates that 91.8% of complaints finalised by OSTI identified specific TCF outcomes that were not met. Beyond TCF Outcome 1, other significant concerns included dissatisfaction with service standards (25.2%, TCF Outcome 5), products not meeting expectations (18.5%, TCF Outcome 5) and facing unreasonable claim submission barriers (10.8%, TCF Outcome 6).
What FSPs can also take away from the OSTI’s focus on categorising complaints according to TCF is that under the new regulation, merely logging complaints will be insufficient. FSPs must conduct thorough root cause analyses to determine where their actions fell short of meeting TCF standards and implement appropriate corrective actions.
It’s all connected
The OSTI report’s section on Insurers’ Statistics (pg. 52) also provides insight into how data from different sources will be used to paint a more comprehensive industry picture, enabling the regulator to follow a risk-based oversight approach.
The Insurers’ Statistics section looks at complaints received and finalised by the OSTI, as well as matters resolved through conciliation by the parties. It also uses FSCA statistics on claims received by the insurer. This allows the Ombud to determine the number of complaints received by its office per 1 000 claims received by the insurer. When reviewing this report, one can easily identify insurers with a significantly higher rate of complaints, which may potentially require further analysis.
As mentioned in previous articles, the data submitted by FSPs through their Omni-CBR reports won’t exist in a vacuum. The FSCA will group similar FSPs, allowing them to quickly identify industry outliers, such as an FSP with an unusually high complaints or cancellation rate. Additionally, the FSCA has access to data submitted by product providers, which enables them to determine whether an issue lies with an FSP (e.g., the product is sold to the wrong type of customer) or the product itself (e.g., the complaints or cancellation rate for the specific product is higher than the industry average).
Learning from the insurance industry
As FSPs prepare for the COFI Bill and Omni-CBR, valuable lessons from the insurance industry can guide their efforts. The OSTI’s finding in the Insurance Ombudsman 2023 Annual Report highlights the importance of embedding TCF principles in operations. Key areas for improvement include ensuring clients feel that TCF is part of the business’s culture, delivering acceptable service standards and minimising post-sale barriers.
Moreover, the FSCA’s ability to identify industry outliers through integrated data underscores the need for thorough root cause analyses of relevant business data such as distribution results, complaints and claims processing. FSPs must go beyond merely logging complaints (meeting compliance requirements) to finding the causes of detrimental client outcomes, implementing remedial action and fostering continuous improvement.
By learning from the insurance sector’s experience and adapting to these regulatory expectations, FSPs can navigate COFI and Omni-CBR effectively and thrive in a more client-focused industry.