The On-line insurance journey – disrupted due to new FCA premium finance requirements?

In olden times, a broker asked her customer if she would like finance to spread the cost of her insurance premium, posted or faxed the details of the customer to a friendly premium finance provider, who confirmed the finance and then after as long as possible and a few reminders settled the insurance broker. Some premium finance providers made an art of this, collecting as many instalments as possible from the customer before eventually deigning to settle the broker.

Oh, how things have changed and become slicker. In this modern high-tech age, a customer goes on-line, gets her insurance and at the same time gets her finance. The broker doesn’t need to intervene. When the broker’s customer ticks the finance option, the broker is settled with funds from the finance provider and the finance provider simply collects from the customer. How simple is that?

However, all good things must come to an end. New regulatory requirements now mean that the lender must be a lot more “Responsible” and both the broker and the lender must treat their customers fairly.

So how can a lender demonstrate that he has been “Responsible”. Is checking the customer’s credit history satisfactory? According to the regulator you would get nil points for this answer. Just so you get this, if you have a customer that has historically always paid you on time and also paid all its other credit obligations on time, if you simply lend to that person, that is not being “Responsible”. So how do you get “Responsible”? Again according to the Regulator you must ask the customer its income and expenses and you must ask the customer whether the finance they are taking is “affordable”. Not a big issue you may say – but in the context of the insurance industry it is a very big set of questions. Insurance companies and insurance brokers have never historically asked their customers for a breakdown of their income and expenses. In fact, when I asked a number of brokers about this, they clearly stated that they would feel very uncomfortable asking their customers this question.

Let’s get back to our wonderful on-line journey. Can you see how it is in danger of breaking down, with this income and expenses question? Let’s say the wonderful teenagers in your tech department say no problem, we’ll just add a couple of questions to the on-line system that will ask the income and expenses of the customer. Adding 2 more boxes is child’s play for the kids in the tech department. Might take a little longer for some of those more “established” insurance broker system providers though. So we have our solution? 2 more boxes job done. Alas no. As how do you know that the information provided by the customer is correct? There is no way of verifying income other than wage slips or bank statements – but you can’t include viewing bank statements as part of an on-line journey for the sale of an insurance product!

So the beautiful on-line journey, which insurance companies, brokers and finance providers have spent many millions of pounds on appears to be broken.

We have only just considered the “Responsible” lending part. The treating customers fairly part will also need to be changed in the on-line journey. Currently, customers simply tick a box stating that they want finance. They are quoted a rate, which most of them ignore or care very little about. The problem is that the rate they are paying on an on-line journey may be different on another on-line journey even though the ultimate lender is the same entity. I’ve said it before and I’ll say it again. For a broker and a lender to treat a customer fairly they must charge the same rate, regardless of the broker through whom the customer finances the policy.