The Central Bank of Ireland published its annual Consumer Protection Outlook 2021 yesterday. This sets out what the CBI see as the priorities for the Bank in protecting those who use financial services and what the Bank will focus on for the next year. The priorities are informed by the CBI’s supervisory work, sectoral risk assessments and ongoing engagement with consumer stakeholders.

The CB identified six key cross sectoral risks:

1. Absence of a consumer-focused culture

2. Consumer protection during the Covid-19 pandemic

3. Ineffective disclosure

4. Unfair practices and behavioural vulnerability

5. Risks from technology

6. Mis-selling and inadequate suitability assessment

A consumer-focused culture has been the mainstay of the CBI for some years now. The Bank looks for firms to evidence that Boards and Senior Executives not only have comfort that fair consumer outcomes are being delivered, but also to how they drive a culture which has the consumer at its heart. There is an expectation that firms will be able to evidence this culture and assess how it is embedding. We can also see the CBI looking for firms to go beyond simply meeting the letter of the rules and thinking about whether they do business in a way that meets the intent behind the rule.

While focused mainly on bank branch closures, the CBI also highlights the importance of the consideration of vulnerable customers in how they interact with financial firms. Diversity and Inclusion was also noted as a particular priority.

The CBI reiterated the position that insurance firms need to be clear about the cover provided, particularly in relation to Covid-19 and reminded firms that where there is doubt about the meaning of a policy term, then the interpretation most favorable to the consumer must be taken as well as applying the outcome from any legal action across the relevant consumer population.

Ineffective disclosure is a perennial issue for conduct regulation. Poorly presented or jargonistic information can materially impact the ability of consumers to assess the value of an insurance product and understand the cover offered. We know that the Consumer Protection Code will be undergoing a review shortly and we have already been working with the team at the CBI to ensure that considerations from the insurance sector are heard.

Ease of switching was noted by the CBI and firms are expected to provide clear and simple processes to facilitate this. The ability to shop around or negotiate was highlighted in the report as a particular area of concern for vulnerable customers. The CBI noted that vulnerability could take many forms, including age, income or capability and insurance policies were noted to be a particular concern due to the tendency for these consumers to stay with existing providers rather than search the market. The importance of strong internal governance arrangements and oversight of any policies and algorithms will form part of the CBI supervision in 2021.

The CBI found that firms have failed to keep pace with the investment in technology and the impact on consumers range from inconvenience to outages and fraud. Firms are expected to have comprehensive oversight of IT and cybersecurity risk management and strategies, as well as having adequate safeguards to protect consumer information.

Sustainable products and insurance ‘add-ons’ were particularly noted as potentially leading to mis-selling and/or inadequate suitability assessments and concerns about cross-selling were also noted.

So what do the CBI plan to do to mitigate these risks in 2021?

• Deliver intrusive risk-based supervision
• Enhance the consumer protection framework
• Drive firms to embed consumer-focused cultures
• Influence, shape and deliver key policies for regulation
• Ensure fair treatment of borrowers in financial distress
• Enhance the gatekeeping process

For all regulated firms, this means:

• Continuing the review of the Consumer Protection Code (CPC) – a consultation is due in 2021
• Continuing the focus on behaviour and culture as well as challenging Boards and leadership teams to demonstrate action towards a consumer-focused culture
• Building behaviour and culture assessments into the BAU supervisory approach
• Supporting the review and development of various EU initiatives such as disclosure requirements under Sustainable Finance Disclosure Regulations (SFDR) as wellas other elements of the Capital Markets Union (CMU), particularly those proposals seeking to enhance financial education
• Aligning work across the Bank on Climate Change through the establishment of a new centralised Climate Change Unit
• Rigorously assessing applications from firms seeking to provide services in Ireland
• Robustly assessing fitness and probity of individuals proposed for certain roles

For insurance, this means:

• Completing the review of differential pricing practices in motor and home
• Progressing the resolution of business interruption insurance issues arising from Covid-19 by influencing firms to adopt a consumer-focused approach (being mindful of relevant legal action outcomes)
• Building on expectations of insurance firms to demonstrate Diversity and Inclusion following the completion of the thematic review in 2020
• Working at EU level to input into the Packaged Retail Investments and Insurance Products (PRIIPs) review

Insurance Ireland continues to work with the CBI on conduct and consumer issues, supported by our Culture and Conduct Risk Committee (CCRC) as well as various other working groups. If you would like more detail on the work in this area, please contact Jacqueline Thornton