Consumer Duty (FCA)

What is Consumer Duty?

Consumer Duty is the Financial Conduct Authority's (FCA's) fundamental shift in how UK financial services firms must treat retail customers. Introduced with final rules published in July 2022 and implementation required by July 2023, Consumer Duty establishes a higher standard of consumer protection requiring firms to put customers' needs first and deliver good outcomes throughout the customer relationship.

Consumer Duty represents a move from principles-based regulation (where firms had flexibility in how they met general principles) to outcome-focused regulation (where firms must demonstrably achieve specific good outcomes for customers and provide evidence to prove it). The FCA can now enforce against firms for failing to deliver good outcomes, even if the firm technically complied with specific rules but still produced poor customer results.

For insurance firms operating in the UK, Consumer Duty has significant implications for product design, marketing, sales, customer service, and especially claims handling. Every touchpoint with customers must be designed and operated to deliver good outcomes, with firms maintaining evidence demonstrating those outcomes.

What the FCA Requires: Shift from Principles to Outcomes

The core shift in Consumer Duty is from process compliance to outcome achievement:

Under prior regulation, firms demonstrated compliance by showing they followed required processes - having compliant terms and conditions, providing required disclosures, maintaining appropriate systems and controls. If a firm could show they followed the rules, they were generally compliant even if customer outcomes were poor.

Under Consumer Duty, process compliance is insufficient. Firms must demonstrate they actually deliver good outcomes for customers. Following processes that produce bad outcomes is now a regulatory failure. The FCA expects firms to proactively identify where outcomes are poor, understand why, and take action to improve outcomes.

This requires firms to monitor outcome metrics continuously, analyze customer complaints and feedback for outcome indicators, conduct regular reviews of whether customers are receiving value, and adjust products, processes, and controls when outcomes fall short.

The Four Outcomes

Consumer Duty establishes four specific outcome areas firms must achieve:

1. Products and Services Outcome: Products and services must be designed to meet the needs of customers in the target market and perform as firms have led customers to expect. For insurance, this means: policies must provide the coverage customers need and expect, exclusions must be appropriate for the target market and clearly communicated, claims processes must deliver on the coverage promise, and products must be regularly reviewed to ensure they continue to meet customer needs as circumstances change.

Firms must ask: Does this product deliver what customers need? Are there features or exclusions that create foreseeable harm? When customers make claims, does the product perform as they expected?

2. Price and Value Outcome: The price customers pay must represent fair value - a reasonable relationship between the price and the benefits provided. For insurance: premiums must be reasonable relative to coverage provided and claims paid, charges and fees must be transparent and justified, and value must be assessed not just at initial sale but throughout the customer relationship (renewal pricing must also represent fair value).

Firms must conduct regular value assessments asking: Are customers getting value for what they pay? Are there customer segments or products where value is questionable? What evidence demonstrates value?

3. Consumer Understanding Outcome: Communications must enable customers to make informed decisions. Customers should understand what they're buying, what coverage they have, how to make claims, and any limitations or exclusions. This requires: clear, accessible communications avoiding jargon and complexity, information provided at the right time in the customer journey, proactive explanation of key terms, limitations, and exclusions, and testing whether communications actually achieve understanding (not just whether they're technically accurate).

Firms must evaluate: Do customers actually understand our communications? Are there common misunderstandings we can identify? Where do customer complaints or questions reveal confusion?

4. Consumer Support Outcome: Customer service and support must meet customers' needs throughout the relationship. For insurance claims, this means: accessible claims reporting and customer service, timely responses to inquiries and claims, support appropriate to customer characteristics and vulnerabilities, and empowered staff who can resolve issues effectively.

Firms must assess: Can customers easily access support when needed? Do we respond promptly and effectively? Are there customer segments not being served adequately?

Evidence Requirements: What Regulators Want to See

The FCA expects firms to maintain comprehensive evidence demonstrating Consumer Duty compliance:

Outcome Metrics and KPIs: Firms must define and track metrics showing whether good outcomes are being delivered. For claims, relevant metrics include: average time from FNOL to settlement by claim type, percentage of claims settled within target timeframes, complaint rates and complaint categories, customer satisfaction scores (claims experience surveys), claim approval vs denial rates and reasons for denials, and settlement amounts as percentage of claims submitted (detecting systematically low settlements).

The FCA wants to see these metrics tracked over time, analyzed for trends and concerning patterns, and acted upon when poor outcomes are identified.

Management Information (MI) Dashboards: Senior management and boards must receive regular MI showing Consumer Duty outcomes. The FCA expects board papers and management reports demonstrating: regular review of outcome metrics, discussion of where outcomes fall short, decisions on actions to improve outcomes, and monitoring of improvement initiatives.

Firms need systems generating these reports automatically and maintaining records of board/management review and actions taken.

Customer Feedback Analysis: Firms must systematically analyze customer complaints, feedback, surveys, and other voice-of-customer data to identify outcome failures. The FCA expects: root cause analysis of complaints identifying systemic issues, trending of complaint themes over time, correlation of complaints to specific processes or product features, and evidence of actions taken to address complaint root causes.

Value Assessments: Annual value assessments must demonstrate that products and services provide fair value. These assessments should show: what customers pay (premiums, fees, charges), what customers receive (coverage limits, claims paid, services provided), comparison of costs to benefits, and conclusion on whether value is reasonable with supporting evidence.

Enforcement Timeline and Active Enforcement

Consumer Duty implementation followed a defined timeline with enforcement now active:

Guidance Published - 2022: The FCA published final Consumer Duty rules and guidance in July 2022, giving firms one year to implement.

Implementation for New and Existing Products - July 2023: Firms were required to comply with Consumer Duty for all new products and services sold from July 31, 2023, and existing open products (products still being sold or where customers can renew).

Implementation for Closed Products - July 2024: Firms must extend Consumer Duty compliance to closed products (products no longer sold but still in force with existing customers) by July 31, 2024.

Active Enforcement - 2024-2026: The FCA is now actively supervising and enforcing Consumer Duty. Enforcement actions include: detailed firm reviews and assessments, enforcement actions against firms with systemic outcome failures, public censures and financial penalties for serious breaches, and required remediation programs to compensate customers harmed by poor outcomes.

Claims-Specific Implications

Consumer Duty has particular significance for insurance claims operations:

Settlement Speed and Communication: Slow claims handling produces bad outcomes. The FCA expects claims to be processed promptly with regular customer communication. Firms must track settlement speed, identify delays and bottlenecks, and demonstrate continuous improvement. Claims sitting for weeks without adjuster contact or status updates represent outcome failures.

Fair Outcomes and Settlement Adequacy: Claims settlements must be fair and appropriate. Systematically low settlement offers, aggressive denials of borderline claims, or exploitation of customer lack of sophistication violate Consumer Duty. The FCA expects firms to demonstrate settlements are fair, supported by evidence, and reflect genuine coverage analysis rather than tactics to minimize payouts.

Avoiding Foreseeable Harm: Firms must identify and prevent foreseeable harm in claims processes. Examples include vulnerable customers not receiving appropriate support, complex claims processes creating unnecessary difficulty, denial letters using jargon customers can't understand, and excessive documentation requests creating barriers to legitimate claims.

How Audit Trail Systems Generate Evidence Automatically

Technology systems with comprehensive audit trails are fundamental to Consumer Duty compliance:

Immutable Logs of All Actions: Every decision, communication, and action is logged with timestamp, user, and rationale. This creates evidence showing: when claims were reported, how quickly adjusters responded, what decisions were made and why, what communications were sent to customers, and how long each stage of processing took.

Searchable History for Complaint Investigation: When complaints arise, complete audit trails enable rapid investigation showing exactly what happened, identifying where outcomes fell short, and supporting root cause analysis. This evidence is essential for FCA inquiries and internal quality improvement.

Export-Ready Reports: The FCA expects firms to provide evidence in accessible formats. Systems should generate board reports showing outcome metrics, trend analyses identifying concerning patterns, complaint analysis summaries, and value assessment supporting data - all exportable for regulatory submission or board review.

UK insurance firms must treat Consumer Duty as a strategic priority requiring investment in systems, processes, and culture to deliver demonstrably good outcomes for customers with comprehensive evidence proving it.