Can you answer three key questions about vulnerable customers?
28 June 2021
Gaining a true understanding of customers’ vulnerabilities and needs is the first step on the road to meeting the FCA’s expectations on the fair treatment of vulnerable customers.
Without an accurate picture of the vulnerabilities in their target market and customer base, firms can’t effectively meet customers’ needs and ensure good outcomes.
A key litmus test is to ask: what percentage of our customers are vulnerable, what are the most prevalent drivers of vulnerability among our customers, and what are the most common needs?
In our experience, many firms can’t confidently answer those three crucial questions, yet that information is a prerequisite for so many important elements of treating vulnerable customers fairly.
Given vulnerabilities can be so broad in scope (the FCA’s October 2020 financial lives survey found over 50% of UK adults displayed at least one characteristic of vulnerability), knowing the type and prevalence of vulnerabilities in a firm’s customer base is critical to taking a more proportionate and targeted approach to meeting customer needs.
For example, firms can use that information to inform staff training, product design and communications. The ability to monitor customer outcomes (another key aspect of the FCA guidance) is contingent on first having accurate data on customer vulnerabilities - after all, management information is only as good as the data on which it is based.
So how can firms address this?
There are two key elements: first, challenge any internal assumptions and guard against complacency, to ensure an accurate picture of customer vulnerabilities, particularly those that may be harder to spot. Engaging a third party to carry out research on the firm’s customer base can be one approach. We know of one insurer that had assumed older age to be the most common vulnerability in its customer base, but after carrying out external research found it was financial capability. As a result, the firm made changes to its staff training and customer communications to better recognise, encourage disclosure of and meet customer needs relating to financial capability. Another firm identified an uptick in hearing disabilities among its customers only after experiencing a rise in telephone communications due to COVID-19 - raising the question of what other common vulnerabilities it hadn’t spotted.
The second element is the importance of encouraging disclosure through all channels. Our industry research found many firms could do more to encourage disclosure through digital channels, with just 17% of respondents saying they use in-app information on disclosure policy and 30% saying they use chatbots to encourage disclosure. As digitisation continues, it will be increasingly important for firms to focus on this. Firms should also consider communicating to consumers the benefits of disclosing their circumstances and needs, to overcome consumer nervousness about sharing such information with their provider.
A combination of more effective disclosure and assumption-testing research can help fill the gaps that many firms have in their vulnerable customers data. Knowing the answers to the three questions posed at the start of this blog will help firms shape their approach to identifying and communicating with vulnerable customers, and meeting their needs. Ways they can do this include partnering with more relevant charities, focusing staff training on the most common vulnerabilities and needs, and designing products and services to include features that meet prevalent needs - all steps which help improve customer outcomes and meet the FCA’s expectations.