UK financial regulations can appear convoluted from outside – a dense jungle of legal obligations that could scare more faint-hearted insurance firms away. At the heart of this jungle lies the concept of Consumer Duty – a set of standards enforced by the Financial Conduct Authority (FCA), the regulator that oversees all activity in the sector, including insurance.

It is a deceptively simple notion – the requirement that financial firms prioritise positive outcomes for their customers, and work to address any issues that risk causing harm to them. This includes an expectation for firms to be proactive in delivering good customer outcomes, rather than waiting for intervention by the FCA or other bodies.

Covering customers’ needs at a fair price

A spokesperson from the FCA began by explaining that above all else, when it came to financial products such as travel insurance, “we expect consumers to be able to access [products] which cover their needs at a fair price”.
“Travel insurance provides peace of mind for those enjoying a trip in the UK or abroad,” they continued. “Our Consumer Duty builds on the work we’ve done with industry to make sure consumers get good and fair outcomes.”

They explained that the Consumer Duty, which came into force for open products and services on 31 July 2023, had resulted in a number of good practices developing among financial firms.

This includes many businesses:

• Ensuring that responsibility for good customer outcomes is understood and owned “across the business”, rather than just by risk and compliance teams
• Developing new data and metrics to better understand customers, as well as introducing appropriate governance so that action takes place where problems are identified
• Updating bonus structures to incentivise staff behaviours in line with Consumer Duty
• Examining whether the total cost to consumers of their products and services provides fair value relative to their benefits
• Precisely defining the target market for products and services that could cause harm if sold to the wrong consumers, and ensuring those products and services are sold correctly.

However, the spokesperson also reported that while significant progress had been made, there was still work to be done to ensure a high quality of service to customers.

We expect consumers to be able to access products which cover their needs at a fair price

Clear communication and precise wording

From the perspective of the FCA, it maintains that “consumers can only be expected to take responsibility for their financial decisions where firms’ communications enable them to understand their products and services, their features and risks, and the implications of any decisions.”

Consequently, at the heart of much of the authority’s work in enforcing Consumer Duty is ensuring that customers are given “the information they need, at the right time, and presented in a way they can understand”.

What this translates to in reality for travel insurers is a need to overhaul policy wording and other guidance to be more clearly understood by consumers. 

Garry Nelson, Head of Corporate Affairs at AllClear Travel Insurance, said that ultimately “a policy wording constitutes a contract between the customer and the provider, and, to this end, terminology and layout can both be complicated by nature”, as they may be in any contractual relationship.

Despite this, his company has made efforts to address any potential confusion that may arise with customers through improved signposting and guidance. 

“We have tried to make our policy booklets more user-friendly by making them larger, more colourful, and through colour-coding clearly identify what is and isn’t covered,” he said. “We also include pointers to information that is very important to read and be aware of.”

Nelson added that, for his company, getting policy wording right was especially important when serving older or more vulnerable customers, who may struggle more than others when navigating the world of insurance.

“As a business that deals primarily with an older demographic and those people living with medical conditions,” he said, “we take our responsibilities extremely seriously in ensuring as best we can that our policy wordings are both clear and transparent.

“To this end we constantly monitor customer feedback with dedicated teams reviewing the main drivers for confusion or complaint.”

He added that recommendations are then routinely made and actioned to ensure that any identified points of confusion are reworked to be clearer.

The Association of British Insurers (ABI) – a trade organisation that represents the UK insurance industry – has worked in partnership with advocacy groups Fairer Finance and Plain Numbers to support its members’ work in improving language and number comprehension. It has also published guidance for how consumers can select the right policy for their needs.

An ABI spokesperson stated: “Supporting customers and helping them to understand the products they’re purchasing has always been a priority. We remain committed to supporting our members in building on the work and good practice they’ve already undertaken to best serve their customers.”

Technology can make simplifying documents easier

In the past, the use of paper documents would have made this a significant challenge. However, Tim Riley, Chair of the Association of Travel Insurance Intermediaries and Managing Director of True Traveller, highlighted that growing digitisation across the industry had streamlined this issue.

He noted that “most travel policies are now sold online” – something that is a big advantage when ensuring that Consumer Duty and protection standards are met.

“Very few people will go into a broker to purchase a policy face to face, and, due to the burden of regulation, few travel agencies now sell policies,” he continued. “The advantage of websites is that the information given can be simplified and made clearer for the consumer on an ongoing basis.

“If you were to go onto the Internet Archive and look at an intermediary’s website from 10 years ago, and [compare it with] today, you’ll discover that the information provided is much clearer than before, and much easier to understand.”

Alongside this is a greater recognition among insurers of the need for plain language in documentation. 

“Policy wording has also come a long way,” said Riley. “It used to use quite technical phrases which in some cases were hard to understand. Our new wording from February has had whole tranches of wording updated to make it clearer.”

However, he warned that it can be a “fine line” when cutting down wording, while also taking care not to remove or restrict coverage, so a careful balance is needed to ensure that the wording remains functional. 

Riley also noted the growing usefulness of artificial intelligence (AI) as a means of simplifying policy wording: “You can enter your current policy wording and ask for variations. Make it shorter, make it less formal, make it bullet points, all of which have saved an enormous amount of time as previously this would have meant a whole team of people to go through many different drafts.”

A policy wording constitutes a contract between the customer and the provider, and, to this end, terminology and layout can both be complicated by nature

Lack of understanding is an ongoing concern

However, while insurers may continue to be working to improve customers’ understanding of their policies as best they can, in line with the FCA’s expectations regarding Consumer Duty, things may not be progressing fast enough.

When it comes to travel insurance, the UK Financial Ombudsman Service (FOS) – the body that works to rectify disputes between financial service providers and customers – says it has seen a rising number of complaints in recent years. This includes 4,466 about travel insurance in the 2023/24 financial year – a 19% increase on the previous year (2022/23), when there were 3,745 complaints about travel coverage.

An FOS spokesperson also noted that complaints are far higher than they were before the Covid-19 pandemic – in 2019/20, there were only 2,510 travel insurance-related complaints – with the majority of cases being in response to rejected claims.

One trend that the FOS has observed is a growing number of policyholders being told their medical conditions had not been properly disclosed. This is alongside growing numbers of complaints about the level of medical assistance provided when travellers fall ill overseas, as well as complaints related to claims for missed or delayed flights, and lost or stolen luggage.

“It’s concerning to see so many people dissatisfied with their insurance provider,” said Abby Thomas, former Chief Executive and Chief Ombudsman of the FOS, who emphasised that insurance firms have a duty to ensure that their customers are treated with consideration and fully understand the policy that they are purchasing.

We constantly monitor customer feedback with dedicated teams reviewing the main drivers for confusion or complaint

“It’s so important firms take the time to explain terms, treat people fairly, and ensure everyone understands their policy,” she said.

Riley suggested that while travel insurance is a “complex product, with many different areas of cover”, some customers may be lulled into a false sense of security due to the “low price of it” which, he said, “can lead to consumers not really reading the information fully, [and] which can lead to issues later if they do need to make a claim”.

Customers still hold responsibility

However, alongside this, the FOS emphasised how important it was that customers themselves do the appropriate amount of due diligence. It recommended that they should always check terms and conditions carefully, understanding any potential exclusions, and being sure to inform their provider about any medical conditions they may have.

The FOS also emphasised that travel insurance is not the same thing as private medical insurance, and that most travel policies will require the policyholder to seek treatment in a public hospital under most circumstances.
This balanced approach to customer/service provider responsibilities translates into the FOS’s mediation process, which encourages customers to work with the insurer or other service provider before involving them directly.

Conclusion

Consumer Duty is a dominant force in the UK financial regulatory environment, and more work still needs to be done by insurers to ensure that customers understand their policies. 

Innovations in technology such as AI, as well as the growing digitisation of documentation, could accelerate change to things like policy wording. Meanwhile other strategies, such as revised employee bonuses and making greater use of analytics, also offer scope to change how insurance companies can identify potential issues and incentivise change.