Recent communications from the FCA highlight that the regulator is likely to focus heavily on the value of products in 2024. This rhetoric is getting louder, and it is aimed at the whole distribution chain where it will likely extend significantly towards brokers and agents over the next 12 months.
But why has fair value become such a key concern for the regulator?
Let’s start by looking at what value means. An internet search offers the following definition from Oxford Languages:
- the regard that something is held to deserve; the importance, worth, or usefulness of something.
- principles or standards of behaviour; one’s judgement of what is important in life.
- estimate the monetary worth of.
- consider (someone or something) to be important or beneficial; have a high opinion of.
Every one of these is relevant to insurance.
Whilst it’s easy to think that the FCA is purely targeting remuneration structures and the actual cost of insurance to the end consumer, i.e., “estimate the monetary worth of”, it’s also extremely important to consider the bigger picture in terms of what value means in this instance captured in the rest of the definitions above.
In my opinion the FCA agrees with this. It is clear that its focus on fair value is not solely on price, because it defines fair value as “the relationship between the overall price to the customer and the quality of the product(s) and/or services provided”. So, it’s important that we all take some time at the start of this year to step back and think about how we get better at defining the true value of insurance and financial advice as a service.
Focus on the worth of your service, the quality of your people and the importance that you place on training your staff
Insurance is a product that offers value, protection and risk management, and the profession of insurance broking is largely an advisory service that carries its own costs and overheads that need to be maintained to build resilience into the sector and to provide sustainable competition, which all benefits the policy holder.
It’s important, therefore, that firms start to think more about how they add value to this service; after all, the key activities, the key resources, and the cost structure that defines how you run your organisation are part of your business model. Without them, you would struggle to grow, let alone continue trading, a key part of operational resilience.
As well as the core overheads, an insurance broker or advisor should consider the various services they provide and the resources needed to provide a fair service that protects consumers from harm, such as:
- customer service
- sales, marketing and renewals
- claims handling and management
- continuing professional development
- recruitment and career development
- insurer relationship management
When we start to define the value of what our industry does, then it becomes easier to correlate value with end cost, which is no different to how any other business in any other industry calculates its pricing and margins for growth.
How you measure and define your true value is for your board meetings, it relates to how you run your business and define your culture. It’s not hard to do, but I would urge you to begin this process if you haven’t already.
What I want to focus on in this article is how we can relate this back to training and competence. Training can often be neglected by regulated firms or seen as an afterthought to tick a compliance box, but if we think more strategically about evidencing the true value of the services that we provide, then we can start to build a compelling business case for how training becomes a key differentiator for the worth that a professional advisor brings to the customer.
The value in training your workforce has many benefits to your own business objectives, such as:
- increased productivity
- more motivation
- less staff attrition
- improved quality of work
- less complaints
- less claims repudiation
- better management and leadership decisions
- lower risk of FCA enforcement
- reduction in recruitment overheads
- better customer service
- better relationship management
- building operational resilience
Training is a key factor that firms should be looking to invest in for the right reasons, yet it is also an area that firms look to cut back on when cost savings need to be made. If your staff are not competent, then the FCA will rightly challenge you to explain how you are evidencing real value to the consumer. Lack of training can lead to poor service, poor advice, and a greater risk of consumer harm, which is not a value trade-off in any way that you choose to look at it.
Instead, start making sure that you include a per capita training cost in your budgeting and start thinking about training as an investment that builds greater resilience in your business.
Evidence this in your board packs, and build it into your business modelling, fee structures and apportion that cost across your customer base to evidence how you calculate your margins, commissions, fees, etc.
If a customer baulks at an insurance premium or fee that you quote, you will need to be ready to evidence and discuss the true value that you deliver as part of your service, a key component of any sales and business development process. It’s not simply about price and a race to the bottom, there’s no value in that to anybody and it will only harm the market’s reputation.
Focus on the worth of your service, the quality of your people and the importance that you place on training your staff as a key differentiator. That’s where the true value lies.