Conduct Standards Product Risk

Transcription

1 < Picture to go here > Conduct Standards Product Risk Lloyd s 1

2 Introduction Objectives Approach Attendees Lloyd s 2

3 Agenda Context establishing the boundaries of High Product Risk Explanation of elements of HPR Playback of HPR and potentially HPR products Playback of volumes Break-out session Wider market context Table discussion Recording Product Risk Questions Lloyd s 3

4 Context establishing the boundaries of High Product Risk Problems with the term Consumer HPR requires thought Areas of the standards where HPR matter POG Product controls Product design and review Assessing customer need Valuable cover Add-ons Product documentation Sales incentives Service and post-sales Open market placement Impact on MI Lloyd s 4

5 Elements of HPR Customer Risk Lloyd s 5

6 Elements of HPR Product complexity Absolute and relative Novelty Familiarity Time Sales risk Number of policies Number of distributors Product controls Incentives Add-ons Call centres Price comparison sites Service risk Lloyd s 6

7 Playback of obviously HPR products Private fine art Aquaculture Jewellers block Golfers combined package Private yacht Private aircraft Caravan Glider Hot air balloon Gyrocopter Lloyd s 7

8 Playback of obviously HPR products [continued] Event cancellation Track day insurance Personal motor storage Breakdown insurance Airline insolvency Musical instruments Equine Lloyd s 8

9 Playback of potentially HPR products Grey Areas Examples Property and Real Estate Employers Liability Medical negligence Mortgage Impairment Legal Indemnities Casualty Combined Package Financial Lines Marine energy liability Lloyd s 9

10 Playback Approximate customer numbers by product Customer number by product The tables below present a summary of questionnaire data on number of customers per product. Note: customer numbers have been estimated by taking the mid-point of each of the A_E ranges within the questionnaire >1,000,000 1,000, , , ,000 Legal Expenses Household Mobile Phone & Gadget Insurance Accident & Health Motor Extended Warranty Travel Insurance Airline Insolvency Yachts Life Professional Indemnity Sportscover Marine Cargo Legal Indemnity Lloyd s 10

11 Playback Approximate customer numbers by product Customer number by product contd. 100,000 5,000 5,000 1,000 1, Pet Insurance Affinity General Aviation Contact Lenses Bloodstock Payment Protection Insurance Home Emergency Insurance Guaranteed Asset Protection Event Cancellation Livestock Number Plates Cameras Medical Expenses Mobility Scooters Landlord Contingency Golf Hole-In-One Aquaculture UK Property Caravan Marine Liability Motor Breakdown Commercial Motor K & R Medical devices (insulin pumps) Fine Art Jewellery (Acc damage) Commercial Property Cycles Dental Cyber Ticket Refund Lloyd s 11

12 Break-out session [45 mins] Lloyd s 12

13 Break-out session Objectives Apply criteria to a range of products Define the borders of HPR Apply approach to suggested categories Playback views Lloyd s 13

14 Workshop One scores Descending product risk Charles Godfrey (Mobility Scooter) 66 Williams Hodges (Headstone) 61 Jack Jones (Motor) 56 Mavis Pike (Med Negligence) 51 Rugby Club (A&H) 48 International Arena (Conseq loss) 48 Arthur Wilson (Premises) 43 Lady Maltby (Building Regs) 37 Twilight Homes (Scooter Fleet) 27 Jones s Fine Food (BI) 20 Lloyd s 14

15 Lloyd s in a Broader Context Market Context What other firms have done Many firms who have tried to assess conduct risk have used a range of factors, each given a different weighting, to generate an overall risk score typically via some form of spreadsheet analysis: Target market Type of customer (i.e. consumer, smallto-medium enterprise or large corporate) and customer vulnerability (e.g. financial sophistication and expertise)the more vulnerable the customer the higher the risk Market share e.g. if the market share is more than 25% this indicates a high risk Book size e.g. less than customers indicates a low risk Sales and Distribution Coverholder risk e.g. risk rating is dependant upon the qualitative assessment of the coverholder Distributor margin/commission e.g. margin/commission over 50% indicates a high risk Lloyd s 15

16 Lloyd s in a Broader Context Market Context 2 What other firms have done Product characteristics Long term contracts e.g. no annual contract and no annual customer contact indicates a high risk Customer familiarity with T&Cs e.g. low familiarity indicates a high risk T&C s adopted from previous insurer e.g. T&Cs wholly adopted from previous insurer indicates a high risk Post sale features Claims e.g. a claims ratio of less than 20% indicates a high risk Complaints e.g. if less than 50% of complaints are found in favour of the firm this indicates a high risk External environment Where does it feature in FOS complaints list Other firms fined for such product Lloyd s 16

17 Lloyd s in a Broader Context Market Context 3 Key lessons from experience to date: It is for each firm to assess risk in terms of their products, distribution methods and type of customers and to evidence how they have done so and the conclusions they reach In some cases those conclusions may be difficult (for example cease to sell a product or to use a distributor) The process often needs to be refined/reiterated over time based on experience Lloyd s 17

18 Recording product risk The assessment of the Product Risk of each Product must be recorded by the managing agent in such a way that Would enable a person who was not involved in the assessment to understand, in broad terms, how the assessment was made Supports a consistent approach within each managing agent to the assessment of Product Risk generally Allows simple comparison to be made Proportionate Table discussion How should this be done? Open market - at the box Coverholder Lloyd s 18

19 Question and answer session Slides available Playback of outcomes today at next session Lloyd s 19

20 Lloyd s 20