ICOBS 2 General matters

Different provisions in this sourcebook may apply depending on the type of person with whom a firm is dealing. The type of person a firm generally deals with for the purposes of ICOBS is a customer who will either be a consumer or a commercial customer, and sometimes a larger commercial customer. ICOBS in places also refers to firms dealing with policyholders. This guidance explains the combined effect of those defined terms and some of the application provisions in ICOBS 1. 

1. (1) [deleted]
2. (2) [deleted]
3. (2A) The meaning of customer will depend on the part of ICOBS it is used in and the type of insurer involved. A reference to the defined term ‘customer’ in:
   1. (a)(i) ICOBS 2 means a policyholder or prospective policyholder; and
   2.    (ii) ICOBS 2.5.-1R also includes a policy stakeholder; and
   3. (b) the rest of ICOBS (that is, other than ICOBS 2) means a policyholder or a prospective policyholder who makes the arrangements preparatory to them concluding a contract of insurance (directly or through an agent).
4. (2B) In ICOBS the meaning of policyholder depends on whether the insurer of the contract of insurance in question is a Solvency II firm or not. (See the Glossary definition of the term policyholder.)
5. (3) A consumer is any natural person who is acting for purposes which are outside their trade, business or profession.
6. (4) A commercial customer is a customer who is not a consumer.
7. (5) A larger commercial customer is a commercial customer that meets certain size thresholds. For the purposes of the application provisions in ICOBS 1 Annex 1 Part 2 paragraph 2 (and this guidance), those size thresholds only need to be applied to the policyholder involved in making the arrangements preparatory to them concluding the contract of insurance. 

8. (6) Where ICOBS 2 refers to a ‘customer’ then firms will need to comply with those provisions in relation to all of the policyholders (and, where relevant, policy stakeholders) of the contract of insurance in question, irrespective of whether the policyholder making the arrangements preparatory to them concluding the contract is a consumer, commercial customer or a larger commercial customer. (Note that ICOBS 2.7.3G is expressly dis-applied in relation to larger commercial customers.)

    

1. (1)

   Except where paragraph (2) applies, if a customer is acting in the capacity of both a consumer and a commercial customer in relation to a particular contract of insurance, the customer is a commercial customer.

2. (2)

   For the purposes of ICOBS 5.1.4 G and ICOBS 8.1.2 R, if, in relation to a particular contract of insurance, the customer entered into it mainly for purposes unrelated to his trade or profession, the customer is a consumer.

1. (1)

   The effect of section 55NA of the Act is that a firm is unable to approve a financial promotion unless:

   1. (a)

      the firm is a permitted approver in relation to the financial promotion; or

   2. (b)

      an approver permission exemption applies.

2. (2)

   SUP 6A contains guidance on applying for approver permission.

1. (1)

   This guidance applies in relation to a financial promotion that makes pricing claims, including financial promotions that indicate or imply that a firm can reduce the premium, provide the cheapest premium or reduce a customer's costs.

2. (2)

   Such a financial promotion should:

   1. (a)

      be consistent with the result reasonably expected to be achieved by the majority of customers who respond, unless the proportion of those customers who are likely to achieve the pricing claims is stated prominently;

   2. (b)

      state prominently the basis for any claimed benefits and any significant limitations; and

   3. (c)

      comply with other relevant legislative requirements, including the Consumer Protection from Unfair Trading Regulations 2008 and the Business Protection from Misleading Marketing Regulations 2008.

A firm is reminded of its obligations under ESG 4.3.1R in relation to a communication, or when it communicates or approves a financial promotion, that references the sustainability characteristics of a product or service.

1. (1)

   Principle 8 requires a firm to manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. This principle extends to soliciting or accepting inducements where this would conflict with a firm's duties to its customers. A firm that offers such inducements should consider whether doing so conflicts with its obligations under:

   1. (a)

      Principles 1 and 6 to act with integrity and treat customers fairly; and

   2. (b)

      the customer’s best interests rule.

2. (2)

   An inducement is a benefit offered to a firm, or any person acting on its behalf, with a view to that firm, or that person, adopting a particular course of action. This can include, but is not limited to, cash, cash equivalents, commission, goods, hospitality or training programmes.

1. (1)

   The Senior Management Arrangements, Systems and Controls sourcebook (SYSC) contains high-level record-keeping requirements (see SYSC 3.2.20 R, SYSC 9.1.1 R and SYSC 9.1.1 AR).

2. (2)

   This sourcebook does not generally have detailed record-keeping requirements: firms will need to decide what records they need to keep in line with the high-level record-keeping requirements and their own business needs.

3. (3)

   Firms should bear in mind the need to deal with requests for information from the FCA as well as queries and complaints from customers which may require evidence of matters such as:

   1. (a)

      the reasons for personal recommendations;

   2. (b)

      what documentation has been provided to a customer; and

   3. (c)

      how claims have been settled and why.

The general law, including the Unfair Terms Regulations (for contracts entered into before 1 October 2015) and the CRA, also limits the scope for a firm to exclude or restrict any duty or liability to a consumer.

An insurer may choose to draft its conditions and warranties so that they clearly state the particular types of crystallised risks covered by the policy to which they are connected, for the purposes of ICOBS 2.5.2AR(1). Alternatively the insurer may in practice have systems and controls which operate the conditions and warranties in a way that has the same effect.

1. (1)

   Where it is compatible with the nature of the obligation imposed by a particular rule, including the customer’s best interests rule, and with the Principles, in particular Principles 1 (Integrity), 2 (Skill, care and diligence) and 3 (Management and control), firms may rely on third parties in order to comply with the rules in this sourcebook.

2. (2)

   For example, where a rule requires a firm to take reasonable steps to achieve an outcome, it will generally be reasonable for a firm to rely on information provided to it in writing by an unconnected authorised person or a professional firm, unless it is aware or ought reasonably to be aware of any fact that would give reasonable grounds to question the accuracy of that information. However, a firm cannot delegate its responsibility under the regulatory system. For example, where a rule imposes an absolute obligation (such as the requirement for an insurer to handle claims promptly and fairly) although a firm could use outsourcing arrangements to fulfil its obligation, it retains regulatory responsibility for achieving the outcome required.

Firms are reminded of their obligations in SYSC 19F.2 to ensure remuneration arrangements do not conflict with their duty to act in the customer’s best interests.

Firms are reminded that for non-investment insurance contracts, their obligations under the customer’s best interests rule (and in SYSC 19F.2 and PROD 4) will include consideration of the interests of any policy stakeholder of which the firm should be aware (which, in relation to a multi-occupancy building insurance contract, will include any leaseholder).

1. (1)

   A firm that offers incentives to third parties in connection with a non-investment insurance contract should consider whether doing so conflicts with its obligations under the customer’s best interests rule, including whether this is consistent with the interests of policyholders and any policy stakeholder in relation to a multi-occupancy building insurance contract.

2. (2)

   A ‘third party incentive’ is a benefit offered to any third party, with a view to that firm, or that person, adopting a particular course of action (for a customer, this includes taking out a particular contract of insurance), or which could be perceived as having that effect. This can include, but is not limited to, cash, cash equivalents, commission, goods, hospitality or training programmes.

To comply with the relevant chapter of SYSC or Principle 3, an insurance distributor will need to have appropriate arrangements in place to ensure compliance with ICOBS 2.6.1R.

The purpose of the guidance in this section is to give the FCA’s view on the outcomes firms should aim to achieve and actions they should take to deliver good outcomes for customers experiencing financial difficulties.

The guidance complements:

1. (1)

   Principle 12, which requires firms to act to deliver good outcomes for retail customers;

2. (2)

   the obligations in PRIN 2A (the Consumer Duty), including in particular the rules in PRIN 2A.2 (cross-cutting obligations), PRIN 2A.5 relating to communication, interacting on a one-to-one basis and adapting communication, PRIN 2A.6 (Consumer Duty: retail customer outcome on consumer support) and expected standards in PRIN 2A.7; and

3. (3)

   the customer’s best interests rule.

However, it is not, and does not seek to be, a complete exposition of all of a firm’s responsibilities to customers experiencing financial difficulties, nor does it alter, replace or substitute applicable rules, guidance or law, including those in relation to credit agreements.

The guidance does not set expectations in relation to the distribution of specialist risks contracts to commercial customers and other general insurance contracts to larger commercial customers (see ICOBS 2.1.1G(5)(b)). However, firms distributing these types of contracts to commercial customers and larger commercial customers continue to be subject to FCA rules (including the Principles) in relation to that business, and will need to continue to consider what those rules may require of those firms in their particular circumstances.

Where a firm identifies a customer in financial difficulty, the firm should:

1. (1)

   provide or ensure that the customer is provided with good outcomes-focused support that is appropriate given the needs and characteristics of the customer to:

   1. (a)

      reduce the impact of the financial difficulty on the customer;

   2. (b)

      enable the customer to maintain an appropriate level of insurance that the customer can afford; and

   3. (c)

      reduce, as far as reasonably possible, the risk of the customer losing appropriate insurance cover that is important to the customer; and

2. (2)

   ensure the customer has an appropriate level of information about the option or options available to them in good time and in an understandable format to enable the customer to make an informed decision.

The options available to, and the level of support reasonably expected to be provided by, firms to achieve the outcomes in ICOBS 2.7.4G will vary, depending on the nature of the firm’s relationship with the customer, the firm’s role in the distribution chain, the type of and characteristics of the customer and the type of product.

Firms are reminded that the level of support needed for customers who have characteristics of vulnerability may be different from that for others; firms should take particular care to ensure they act to deliver good outcomes for those customers.

In relation to Principle 12 and PRIN 2A (the Consumer Duty), firms are reminded of their responsibilities as a firm in a product’s distribution chain, including in PRIN 2A.1.14G, PRIN 2A.1.15G and PRIN 3.2.7R.

When considering outcomes, firms should also consider:

1. (1)

   the purpose of the policy and the interests of all policyholders; and

2. (2)

   whether there are any relevant duties or obligations the customers may owe to others in connection with the policy that should be taken into account. For example, where a property owner may be subject to a duty to leaseholders and others around adequate insurance cover being in place for the property.

Firms should take reasonable steps to make customers aware of, and help them to understand, the support available to them in the event that they experience financial difficulty, and also to enable those customers to easily contact the firm. This includes, but is not limited to:

1. (1)

   including sufficiently prominent information:

   1. (a)

      in the firm’s general communications, including the firm’s website, software applications, letters, telephone recorded messages and other channels of communication;

   2. (b)

      in communications to customers which could be relevant to potential financial difficulties experienced by the customers – for example, in communications to customers about missed payments;

2. (2)

   making it easier for customers to contact them when they need help by considering the different communication needs of customers (for example, those needing to communicate through channels other than electronic means, such as websites, webchats and email).

Where the firm has reason to believe that the customer is, or is likely to be, experiencing financial difficulty, the firm should take reasonable steps to make the customer aware of, and help them to understand, the support available (whether or not a customer has contacted the firm in relation to their financial difficulty).

There are a number of circumstances in which firms may have reason to believe that a customer is, or is likely to be, experiencing financial difficulty. In particular, firms should include consideration of circumstances where:

1. (1)

   customers contact the firm:

   1. (a)

      wanting to reduce their insurance cover (whether having paid in full or on a monthly basis); and/or

   2. (b)

      asking about their insurance cover in a manner that indicates they may have financial difficulties, or about premium payments, including where they have difficulty paying the premium;

2. (2)

   customers have missed payments, even where they have not contacted the firm about possible financial difficulties. A firm should not cancel a customer’s policy solely because of missed payments without first considering options to support the customer;

3. (3)

   there are other indications (whether the customer has contacted the firm directly or not) that the customer is, or is likely to be, experiencing financial difficulty (for example, where the customer has requested cancellation of insurance cover that is important to the customer).

Options which firms should consider to ensure they meet the relevant obligations under the rules, including to act to deliver good outcomes (which may be used in combination with each other), include but are not limited to:

1. (1)

   whether there are other products that provide an appropriate level of insurance cover for the customer at a price the customer can afford and revise the existing cover accordingly;

2. (2)

   adjusting cover to take account of the change in the customer’s financial circumstances. This could be done on a short-term basis (affecting a period within the policy cover period) or for the longer term (affecting the entirety of the remainder of the policy cover period);

3. (3)

   working with customers to help them avoid the need to cancel cover that is important to them;

4. (4)

   re-assessing the risk profile of the customer. It might be that some customers’ risk profiles have changed since purchasing the policy and customers could potentially be offered lower premiums; and

5. (5)

   considering whether it is appropriate to require the customer to pay all contractual fees or charges in circumstances where the firm not relying on these contractual provisions would be needed to provide fair treatment in the customer’s best interests.

6. (6)

   considering whether in the particular circumstances (see ICOBS 2.7.5G) it would be appropriate to refer the customer to another firm in the distribution chain who is in a better position to support the customer.

For shorter-term adjustments, firms should take reasonable steps to ensure that they re-assess the customer’s situation when that short-term period comes to an end to ensure the customer continues to have an appropriate level of insurance. For example, by introducing an expiry date for any changes to a policy and reviewing the situation on expiry, or by inviting customers to contact the firm when their financial circumstances have improved sufficiently.

Depending on the circumstances, options could range from consideration of a single policy to a more holistic approach considering all the policies a customer has with the firm. Firms should consider if it is appropriate to take steps for all policies that the customer holds with the firm.

When setting out the options available to a customer, firms should include an appropriate level of information about each option, including:

1. (1)

   where the option includes possible changes to insurance cover or to a different policy, what the possible changes are, the effect of the changes on the customer, the period of time the changes might apply for, the main exclusions where claims would no longer be able to be made, and the change in the costs to the customer or to their payment plan;

2. (2)

   the effect on premiums paid and still due, and on any interest owed; and

3. (3)

   any cancellation or adjustment fees and charges associated with the options.

Firms are reminded that other rules in ICOBS – for example, those relating to specifying the demands and needs of the customer (ICOBS 5.2.1R), the appropriate information rule which applies at all of the different stages of a contract (ICOBS 6.1.5R), and renewal (ICOBS 6.5) –may also be relevant to the firm in relation to the options available to the customer.