15
Examination of witness
Johnny Timpson.
Q71 The Chair: Good morning and welcome to today’s meeting, which is the sixth oral evidence session as part of the committee’s inquiry into the regulation of the consumer insurance market. Thank you to Mr Timpson for attending. Perhaps you can start off by explaining the role of the Financial Services Consumer Panel and then give us a good idea of how it works with the FCA, what its access to information is, and the relationship that you have in terms of working on problems that you have identified. The floor is yours to explain what you do.
Johnny Timpson: Thank you, and good morning to the committee. I sit on the Financial Services Consumer Panel but, equally, I have some other hats to wear. Before I go any further, for the purposes of transparency, I think it is important to confirm what those other roles are, because it may touch on some of our discussion. In terms of remunerated roles, I sit on the consumer panel; I also sit on the TrustMark consumer protection panel. I am a non-exec chair of Absolute Military, a specialist military insurer that is almost not for profit and which serves the Armed Forces communities, families and veterans. I am also chair of MorganAsh, an organisation which works across essential regulated sectors—financial services, water, energy and telecoms—to help those organisations get smarter with data, and to identify struggling and potentially vulnerable customers before an issue crystallises and a drama becomes a crisis.
In terms of pro bono roles, I sit on the Financial Inclusion Commission. I am chair of the Building Resilient Households Group and I sit on the DWP guided retirement experienced member group. I have been part of the campaign group on democratic deliberation of pensions. I have a couple of advisory roles. Most prominently, I work with the Surviving Economic Abuse charity and the We-Thrive domestic abuse consultancy to advise them on financial services issues. I am also a trustee of TrustMark, which provides free legal services to people at end of life. Apart from that, I sit on the BIBA access to insurance committee as well.
The role of the Financial Services Consumer Panel is to be a statutory panel. It is there to champion, campaign and challenge—“campaign” is a bit strong, but challenge—the FCA on behalf of all consumers. It engages the FCA as it starts to think about shaping policy, designing regulatory change in consultations and the response to those consultations, and it reviews the progress of regulatory change on an ongoing basis. We can give our view to the FCA and influence it, but the FCA makes its own decisions as to what it will go ahead with. I am unable to take up individual cases with the regulator.
The Chair: You used the word “challenge”. When you challenge the FCA on something, how does it respond?
Johnny Timpson: I have been on the consumer panel now for five and a half years and I have seen a change in the FCA over that period. The FCA is quite prepared to listen to what the panel has to say. We make a point of making sure that everything we say is evidence-based. In fairness, it gives us a good hearing. In many instances, it does not necessarily change as a consequence of that, but there are times and instances where it has softened or changed its approach.
One thing that I am quite proud of is the role that we played as a panel in the implementation of consumer duty. As the regulator has moved from principle-based regulation to outcome-based regulation, we made the point repeatedly to the FCA that it has to consult consumer groups and get a consumer view beyond that presented by the panel. In fairness, it is doing a lot more of that now than it ever did in the past, but it is important that it takes the regulatory audience with it. We have urged the regulator to get out around the country, which it is now doing; and to meet financial firms where they are, explain to them the direction of travel the FCA is taking, give a rationale on some of the decisions made, share what it is seeing that is good practice and is working—but equally, to be quite firm and, where things are not working, say so.
The Chair: Were you surprised when the Which? consumer organisation raised a super-complaint?
Johnny Timpson: I must confess that it spoke to me in various roles before doing that. I was very conscious that Which? had not really been a player in relation to insurance issues for quite some time before that, but encouraged to see that it was taking an interest in the need to bring change to the retail general insurance market in the UK, for the benefit of consumers. I was 50:50 on whether or not it should have gone ahead with the super-complaint. In the end, I came down on its side, given the fact that circa one-third of building insurance claims are declined—that is the ones that even get to the submission stage—largely due to the fact that either consumers do not understand the scope of the cover that they have purchased or there has been an issue with non-disclosure.
If I take the committee back to where we were on life insurance around 2005 or 2006, the percentage of critical illness insurance claims paid at that point was in the 70% range. That was on the verge of giving rise to a super-complaint. The big issue was, again, lack of consumer understanding and non-disclosure. The mere threat of a super-complaint served as a catalyst to bring the various trade bodies and professional bodies in insurance together to ask, “What can we do before this super-complaint crystallises?”. We saw the insurance industry do a deep dive in trying to understand why non-disclosure was happening, then testing with consumers the way that questions were framed and their sequencing. Equally, they were testing consumers’ understanding of what could be done to improve what they understood of the breadth and depth of products.
If I look at where we are now, the industry also volunteered—it was encouraged, but volunteered to do so—to disclose the percentage of claims that were paid. As far as I am aware, at this minute in time it is the only sector of the financial services industry that discloses claims paid. I must confess, I would like to see them go a bit further and inform the consumer about the average time to pay a claim, because I think that helps consumers make better-informed decisions. The general insurance industry needs to take learning from that. I have called it out on where the life insurance sector was, particularly given the fact that the vast majority of consumers now buy general insurance and travel insurance from comparison sites. There is learning that can be taken in working with consumers to basically check: are these questions that consumers can engage with and understand; are they framed the right way; is the sequencing correct?
Lord Turnbull: Can I just clarify one point? You used the term “claims paid”. Are these claims that are paid the first time around or claims that are paid eventually, after the consumer has taken the case to other levels—the ombudsman et cetera—and eventually gets some payment?
Johnny Timpson: That is a very good question. It is basically claims that are paid, but let me say here and now—as the non-exec chair of an insurance brokerage—that I say to my board, “If it takes a regulator, a politician, a consumer group or a journalist to call out that we have, basically, done something wrong, we have failed as a board”. I am really concerned that to some extent the FOS is being seen as part of the claims process. That should not be the case. The consumer claims journey should be smooth. They are paying for the promise of insurance.
Lord Turnbull: You are using “claims” as paying it out in the first round and not after various—
Johnny Timpson: Yes. Something is wrong if the claim has had to go to FOS. We need to understand why it has gone to FOS and do a root-cause analysis to basically rectify that, because that tells us there is something wrong with consumer understanding or with the claims process.
Q72 Lord Sharkey: Good morning. One of the biggest changes over the last few years has been the introduction of the consumer duty. Can you tell us, in broad terms, what the impact of the consumer duty has been on the consumer insurance market? In particular, where has the consumer duty succeeded in improving outcomes and where has it failed?
Johnny Timpson: That is a very good question, thank you. It is very timely, given the fact that we are two weeks away from what will be the third anniversary of implementing the open-book phase of consumer duty and the second anniversary of the closed-book phase. I for one am very pro-consumer duty. I say that as a member of the consumer panel and Financial Inclusion Commission, but equally as someone who is the chair of a financial services company. I think that consumer duty pivots us to a place where we can better service and meet the needs of consumers. To some extent, it future-proofs the industry as well.
I am conscious that we had the publication of the Mills review on AI the other day. In 2003, we saw general insurance distribution progressed by the aggregator sector but, right now, we are ready for this next leap, where consumers are using ChatGPT and other AI platforms to ask, “What is the best insurance deal for me?” Given the speed of advance and adoption of AI, I do not think that principle-based regulation could ever keep up with that pace. I think that outcome-based regulation puts us in a better place, but equally it helps to bring innovation to the sector.
We will see new forms of insurance coming on stream in years to come. I am thinking of things such as parametric insurance, where independent evidence of an event occurring can literally immediately result in a claims payment being made to your bank account. An example of that would be on travel insurance, where your flight has been cancelled or delayed. The system automatically knows that is the case and basically pays a claim benefit immediately as a result. That is the potential for insurance going forward, and having an outcome-based consumer duty regime ushers that in.
The things I like about consumer duty are the focus that it puts on the need to improve consumer understanding—not just at point of sale, but all the way through the customer’s lifetime journey and relationship with that institution—and the fact that it puts the emphasis on ensuring the consumer is getting the value, service and support that, frankly, they have paid for and are entitled to. Do not get me wrong: there will still be a need for prescribed rules, and more will be required as we go forward.
Lord Sharkey: We will come on to talk about consumer understanding in more detail later on, but could you tell me where, if anywhere, the consumer duty has failed to do what it was supposed to do?
Johnny Timpson: Frankly, it is too early to say at this minute in time. I would like to have seen more progress, for example, in the support for people who are leaseholders in multi-occupancy properties than we have. In fairness to the FCA, it responded to that and announced earlier this week that it will revisit that issue.
Q73 Lord Turnbull: There is a long chain of command, so to speak, in a transaction. You have the customer, the broker, the promoter of a big name plc; then it goes all the way down to the claims-handling people, who are often outsourced. I wonder whether consumer duty is like my garden: you can put a bit of water on the top, but nothing penetrates deep down. No doubt the various plc boards have had awaydays and industry conferences, but has the consumer duty percolated down through its thinking and behaviour to the real coalface, which is the dealings of the outsourced claims management companies?
Johnny Timpson: Thank you for asking that question. It is quite relevant to some of the work that I have been doing. I do not think that competition and consumer duty are working at the minute for all consumers across the UK to the extent they should be. Northern Ireland is a good example, because while we have seen claims management companies regulated in England, Wales and Scotland, that is not the case in Northern Ireland. Consumers in Northern Ireland currently do not have the same choice in accessing motor, general or buildings insurance that the rest of the UK has. First, it is easier to say, “Well, that is because of the history of the Troubles”. It is not; it is the behaviour in the unregulated claims management culture that is prevalent in Northern Ireland. If you look at the levels of damages awarded in Northern Ireland, they are significantly higher than the rest of the UK. That is acting as a barrier that prevents insurers entering that marketplace and servicing the needs of consumers. There are some other structural issues as well. For example, flood mapping in Northern Ireland is not as advanced as it is in the rest of the UK, which basically makes it more difficult for people to get affordable buildings insurance.
In other areas, it is about looking at the food chain that we have in the insurance industry—I call it following the money. In the retail insurance industry particularly, you have the aggregator, as you rightly say, then a broker, a managing general agent and maybe a Lloyd’s agent at the other end of it as well. There are lots of pricing algorithm mechanisms that percolate through that chain.
I am still perturbed about where we are with the price of motor insurance in the UK and some consumer cohorts. Despite what we saw from the joint Department for Transport, Treasury and FCA working group on motor insurance, I do not think that we really got underneath what some of those pricing issues were, particularly in relation to the use of credit scoring within pricing algorithms. I have always been concerned about how many times credit scoring is being used when the managing general agent is doing their pricing. Are they using it, or is a broker using it, and how many times do we maybe penalise people for being poor, to be quite honest?
The other issue that remains a concern is that there is more to be done on the high cost of premium credit because, despite where we are today, we still see a lot of organisations charging credit card rates of interest on premium credit. In consumer assemblies that I have done around the country, the one thing that consumers are concerned about—and now recognise—is the high cost that they are paying, simply because they cannot afford insurance premiums as one instalment and have to pay monthly. That issue needs addressing.
I chair a small brokerage that supports the Armed Forces. That organisation has chosen to absorb the entire cost of premium credit, so we charge premium credit out at 0%. A number of organisations do the same, but that is not the case for the entire industry. A question that needs to be asked is: “If a number of providers can afford to run it at 0% premium credit, why are you still running it at 30% plus?”
Lord Turnbull: Can I just clarify one point? You said that in England claims management companies are subject to regulation—within the scope of it. That is not necessarily to say that they are effectively regulated.
Johnny Timpson: Yes.
Lord Turnbull: Is the FCA conducting a lot of its dialogue above the levels of the claims management companies, or is this regulation biting at the level at which customers are getting involved?
Johnny Timpson: Looking at what is happening with car finance, I think that it is beginning to bite and consumers are recognising that it is better to make your claim direct than go through a claims management company. In fairness, as an influencer, Martin Lewis has been extremely helpful in driving that message to consumers.
Q74 Lord Hill of Oareford: Good morning. You said earlier that so far as life insurers are concerned, a few years back they came up with a way of revealing their claims record and that was helpful. Is there any intrinsic reason why that cannot be done by other kinds of insurance?
Johnny Timpson: Thank you, Lord Hill. I passionately believe that that should happen and, particularly given the AI-adopted and enabled world that we are in now, why can that not be the case? It does concern me that levels of financial literacy and capability in the UK are not where we want them to be. I am conscious that, as we sit here today, the UK financial well-being strategy, owned by MaPS, does not even have general insurance and life insurance within scope. I am pleased to say that is now changing, particularly given the fact that the vast majority of consumers cannot afford to access a financial adviser. The small number of independent brokers that we now have in general insurance are largely dealing with high-net consumers and companies, so consumers are dealing with aggregators or providers direct, maybe via a bank, and we need to support them. By making financial advice more difficult to access, that risk is being transferred to consumers. To support consumers, we need to help them make better-informed decisions.
I am not a great fan of the Defaqto five-star badge, because literally every company or brand seems to have one. If I look at a number of the GAP insurance products that proved most troublesome, a lot of them seem to be five star. Instead of the Defaqto badge stuff, I would rather we said to consumers, “This is the scope of the cover. This is the premium that you’re paying. For this set premium, this is the percentage of claims that this organisation is currently paying and the timescale it is paying within”. That would go a long way to putting the consumer in a more informed position.
Lord Hill of Oareford: There is nothing about the greater complexity of, say, house cover that would preclude what you would like to see happen? What do the insurance companies say when you say, “It would be very good if you could do what they have done in life insurance”?
Johnny Timpson: That is a conversation I do not think they feel comfortable entertaining, not least as I know that consumer groups have presented evidence on the hollowing out of cover, plus the fact that a number of brands now have platinum, gold, silver, bronze and copper versions of their proposition. That may become a bit more complex for them, but it needs to be done. I also think that we need to make it simpler for consumers to understand the product that they have. You are right that we have made these products far more complex than they perhaps need be.
It is quite interesting that the pensions world is going in the direction of defaults to make decisions easier for consumers. There is much to be said for saying, “Right, let us have a default buildings, contents and travel insurance policy for consumers that does what it says on the tin”. If consumers want additional options, such as maybe frozen foods, or they want all risks on a piece of jewellery or bicycle cover, then great. In fairness, that is where we are now, but there is much that needs to be done.
Lord Hill of Oareford: Can I ask one general question? You have obviously been working in this area for many years. Do you think, in broadest terms, that things for consumers are better, worse, or—despite all the efforts—have stayed the same?
Johnny Timpson: I think that we have made small progress. There is a lot that needs to be done, which is why I welcome your Lordships’ committee taking this inquiry forward. Consumer duty does give us the opportunity to drive change that not only benefits consumers, but if we get it right for consumers that creates better consumer trust in the promise of insurance, which is better for the economy in the round. By and large, that contributes to the growth agenda as well.
One thing we have had, to some extent, is that for a long time retail general insurance and retail protection insurance have been the Cinderella of retail financial services. The regulatory focus—the focus of committees such as your own and elsewhere—has been very much on investments, pensions and savings, but there is work and protection that certainly needs to be done on general insurance. Going back to the Mills review, I think that Sheldon Mills is now leaving the FCA, but he has basically said that within three to four years the world will look different and we need to get ready for that new world.
Q75 Lord Griffiths of Fforestfach: It seems that one of the factors which led to the super-complaint was a lack of urgency by the regulator. I wonder if you could comment on that. More generally, as a panel, how do you find you are treated by the FCA? Does it effectively keep you at a distance? Are you allowed to be quite critical of it or do you have to develop some relationship, but in the end you find you cannot get to the nub of an issue and say, “Look, we think you are doing this far too slowly. You really should be doing it quickly”? If it is defective in any way, who effectively reads the Riot Act out and says, “This is not good enough”? Do you see that as a function of the panel or not?
Johnny Timpson: I think it is one of the functions of the panel, but we are just one of a number of panels. The other organisations that hold the regulator to account are the Treasury Select Committee—frankly, it seems to be before a Select Committee more frequently than any others—and, of course, this committee as well. Holding the regulator to account is something that we are jointly responsible for.
In fairness to how the panel operates, we meet formally as an entire panel once a month, then we have working groups that meet once a month and ad hoc meetings with various pieces that we are working on. At the panel meetings we have, we always have at least one FCA board member, an exec sponsor, attending our meetings. I am pleased to say that we now regularly have non-exec directors of the FCA attending as well. I welcome that; it has just happened within the last 18 months. I would certainly like to see more of that.
We are very much critical friends of the FCA. We have some hard conversations where we just do not like what we are seeing and call it out. It is up to the FCA to determine whether it will accept that point fully and respond to it. Every time that we have a consumer panel meeting, we submit a monthly report direct to the FCA’s board, which it has to review and comment on. Those are the mechanisms that we use to hold it to account.
I can say from personal experience that when I first joined the consumer panel five years ago, I was a bit concerned. I have a general insurance and protection insurance background and I was a little concerned about the level of expertise within the FCA at the time. Listening to some of the submissions being made, it just seemed to be a little too close to some of the things I was hearing from various trade groups, and I did challenge that. It was a painful process, but I am pleased to say those functions are now light years away from where they were.
The FCA is really on it and it understands what is happening in the marketplace. It has taken a bit of pushing, but it is out and about; it is attending industry conferences and conferences with consumer groups. The FCA executive is walking the streets, as we saw recently in Cumbernauld, and it got across to Belfast recently, which is very good to see, but there is more to do.
Lord Griffiths of Fforestfach: Do you think there is any issue at present that could potentially lead to another super-complaint in the making?
Johnny Timpson: At this minute, I do not think that there is. I am seeing pretty good progress in terms of where we are on a number of general insurance issues. The pace of change in the work has increased. We are just about to come to the end of the FCA’s first-ever market study of the protection insurance marketplace since that marketplace was regulated back in 2004, maybe 2005. That was long overdue and is about to happen.
I listened to the comments from some of the consumer groups about the slow response from the FCA, but I have to say that I was very conscious of what was happening in the background at that time. We had the Payment Services Regulator being merged with the FCA; that journey was starting. We had the regulation of crypto. We had buy now, pay later. We had a lot of early embedding of the consumer duty itself. There were a lot of moving parts, which to some extent were taking up a lot of FCA leadership time. I guess it is about priorities: “There are lots of things that we need to fix. Where do we start?”.
It is important that we all step back a bit sometimes and be proportionate in our response to things, because we need to improve outcomes for consumers but consumers are better served by having a healthy, competitive marketplace that is competing for their business. Equally, I am also conscious—much more so, since I joined the panel—that to some extent all fingers seem to point to the FCA and I sometimes think, “The FCA is not on its own”. There are occasions where directors of insurance firms, large and small, and product manufacturers and distributors need to step up and own stuff to prevent a drama becoming a crisis. The same is exactly true of the professional bodies in our sector: the IFoA, the Chartered Insurance Institute, the Personal Finance Society and others, and true also of the trade bodies.
Lord Davies of Brixton: First, to ask the opposite of Lord Griffiths’ question, is there is no suggestion of any super-complaint for motor insurance? If that is right, what is different about motor insurance to home and travel?
Johnny Timpson: I share your concern, Lord Davies. I do not think there is. I am equally concerned about the scope of the Treasury’s financial inclusion strategy in not having pensions or, for that matter, motor insurance in its scope. As I sit here, I am still uncomfortable about where we are with motor insurance. We basically saw the FCA saying, “Well, we’ve done as much as we can. The problem is where people live, the old car that they drive or the lack of local investment in street furniture and filling in potholes”. But we still have an underlying issue: certain cohorts in disadvantaged groups in the UK are paying more for their motor insurance than I think they ought to be.
In every meeting that I have been in, I have been at pains to say to the industry and the regulator, basically, that I am very conscious that there has been an issue in the US, particularly New York state and Hawaii—and I think others—with the pricing of motor insurance and mortgage pricing as well, where the use of credit scores has meant that certain cohorts are getting an unfair outcome. That has led to a number of states in the US stripping out credit scores from pricing algorithms. As we accelerate the adoption of AI, if we do not make sure that folks understand the data fields that are sitting in the algorithms, the currency and the quality of that data—and I have issues with the quality of credit scores—the problem that we have today will be magnified tomorrow.
Going back, I have said, “Can somebody please speak to the regulators in the US and basically find out what has been the experience of consumers in New York state and Hawaii? What has the increase in the cost of their motor insurance been, given the fact that credit scoring is no longer part of the risk and pricing algorithm?” I have not had an answer to that question and I am not letting it go.
Q76 Lord Davies of Brixton: I will move on to the question I was going to ask. We have identified—or Which? has identified—the problem and we are running with it now. In broad terms, do you think it is a failure of the regulator or a failure of the regulations?
Johnny Timpson: There is a bit of both, but equally there is a responsibility for underlying firms as well, because pre consumer duty they should have been making sure that their products and services represented fair value, were understandable and delivering good outcomes for consumers. Looking at where the Which? complaint is, it brings me back to the fact that we are, with buildings insurance today, where we were with protection insurance back in 2005 and 2006. The industry recognised the issue and responded ahead of a super-complaint crystallising back then. It should have taken the opportunity because, in fairness, Which? engaged widely. It basically said, “This is our direction of travel”. I think that the industry should have responded to that Which? ask at the time and prevented the need for a super-complaint in the first place.
Q77 Lord Vaux of Harrowden: I want to ask you a bit about your thoughts around the impact of the price comparison websites. First, they have undoubtedly been very good at making it possible to buy the cheapest policy you can. But there are lots of comments that that is leading to policies being hollowed out et cetera, so they do not necessarily understand what the best policy for the customer might be and just drive you to the cheapest. Is there a problem there, in your view?
Secondly, at the end of the day, the value of an insurance policy is whether it pays out when something goes wrong. As I understand it, the price comparison websites have no visibility over that whatever and do not really try to. Are they meeting their consumer duty in selling these products, which they do not know enough about and whether they are going to pay? In fact, can they meet their consumer duty, given the lack of the information you referred to earlier?
Johnny Timpson: That is a really good question. When it comes to the manufacturer distribution of all retail products, I think that you have to meet the consumer where they are. If we look back to pre-2002 or 2003, where a lot of the country was still paper-based and analogue, we were on a journey to get online. At that point, a lot of consumers were buying their general insurance either from a high street broker or from their bank. The bank or the broker were probably giving advice. They were always accessible. Products were a bit simpler then too, to be quite truthful. The scope of the cover would be explained to the consumer: where cover started, when it finished, what the exclusions were and what they meant, what any warranties meant, what the excesses were and if there were going to be any additional charges. For example, if you take a vehicle off and put another one on, it will cost you an admin fee and that sort of stuff, but there was not as much of it back then.
In 2003, it was about meeting the consumer where they are. The consumer then went online and the people who were quick off the mark and met the consumer in that place were, to their credit, the aggregators. The nature of the sale, let us call it that, changed because it no longer was an advised sale; it became a non-advised sale. Aggregators were very concerned about paying an absolute fortune to get themselves all over TV, so managing their margins was, and remains, a big issue for them. Getting into the complications and costs of advice was not where they wanted to go. They wanted to give the consumer information but not move beyond that advice boundary, if you like. For me, that was a risk transfer to consumers because consumer financial ability then and now, compared to say the US, is not where we would want it to be. It was difficult for them to go and get an independent view, in most instances.
The adoption of aggregated distribution really put a laser focus on to buying on price. To respond to that, we saw companies coming out. In fairness, even before in the analogue world, a number of companies had bronze, silver and gold versions of products, but that became far more pronounced post moving online. Companies had a number of brands, from the same company, facing into the consumer. For example, at the time I worked with Lloyds Banking Group, so you had a Lloyds brand facing into the consumer and you had the TSB and Cheltenham & Gloucester brands, as they were. There were three different versions of the same policy, all at different pricings, so life became a lot more difficult for consumers in making choices. Because the margins that aggregators need were higher than for face-to-face brokers, commission rates went up to respond to that.
That basically pushed the insurer margin, so the poor insurer had to respond and that saw the hollowing out, as James Daley from Fairer Finance and Alastair Reed from Which? articulated when they presented evidence to you. That was the rationale, the reason for it. Equally, we saw the cost of premium credit start to increase as well and that became an income line. Not only did you have a higher insurance product with hollowed-out value; you were paying a higher premium credit charge as well. That was basically what the consumer wanted at the time. We saw face-to-face broker intermediation reverse out very quickly.
I think where we are now is that the aggregators will be faced by consumers just using ChatGPT and other AI platforms to ask those questions. We are on the cusp of another leap, but there are things that we need to do. The aggregators, as you rightly say, are basically about sale and go. There is not a lot of post-sale support, particularly in relation to claims. In an analogue world, that would have been there because the broker would have been holding your hand. We need to make sure that we are providing consumers with appropriate support, which is why I welcome MaPS now bringing general insurance protection into the scope of the financial well-being strategy.
Lord Vaux of Harrowden: Do you think that the price comparison websites are meeting their consumer duty or are even able to? Is it possible for them to do that?
Johnny Timpson: There is certainly more that they can do in terms of consumer duty. I do not think that they are doing enough in understanding. I question sometimes the value, because you have all these different products and they all miraculously have Defaqto’s five stars, which concerns me. I do not think that consumers should be basing a value judgment on whether it has five stars or not. Certainly, there is a lot more that they can do in providing consumers with support. That support is just, “Can you remind me what I am covered for? Where does the cover start? Where does it stop?” and service, but equally there are some service issues that have become an issue over the last couple of years.
For example, when we had the then Bishop of London’s commission on bereavement—of course, she is now the Archbishop of Canterbury—there were lots of issues with insurance policies not providing sufficient support to families on bereavement: for example, in changing drivers on cars, or on ensuring there is continuation of cover while an estate disposed of a house. Things like that all became difficult. Largely, there was no bespoke bereavement helpline or bereavement unit. These are all things that I think need rectifying. Equally, the identifying of vulnerable customers, particularly customers maybe suffering economic domestic abuse, is an issue and needs to be addressed, so lots to do.
Lord Davies of Brixton: If I could jump in quickly, you described in full detail what support customers deserved under the consumer duty, heading towards full advice. Do you think that consumers really understand what proper advice costs?
Johnny Timpson: I do not think that is the case at all, to be honest. Then again, if you were to ask a lot of them, “If there was a broader, deeper service, would you be up for paying a bit more?”, I think we would be surprised and that a number of consumers would. It brings me back: more needs to be done in terms of engaging consumers in the shape of the design of products and services. There has not been anything like enough done in that regard.
Given the AI world that we are now in, that support does not always need to be delivered by a person. It can be delivered by an AI agent. Indeed, if you look at what is happening in the energy sector, which is just about to pivot to outcome-based regulation, that sector is making great use of AI agents to provide consumers with access to information and support. Because you are dealing with an AI agent, the consumer can spend as much time in that conversation as is required, rather than if you were dealing with a face-to-face person, who may or may not be in the UK. Face-to-face call centres try to get the caller off the call as soon as possible. Offering more support is not necessarily going to be too expensive.
The Chair: We need to move on a little.
Q78 Lord Lilley: Is there one concrete change you would like to see that would improve the provision of insurance in this area? There may not be, in which case we will move on to Lady Donaghy.
Johnny Timpson: I was very taken by a recommendation that came out of the Sheldon Mills AI review the other day. It has not received enough coverage, but he was basically saying that we need to level. There is a lot of focus on improving consumer access and inclusion. What we fundamentally need to level up on is consumer financial capability. Sheldon was basically saying that we should be using AI to do that. If I look at the Money and Pensions Service and MoneyHelper service, what we have there is a massive store of helpful information. It is in plain English; it is all crystal marked. The problem that we have is it is a well-kept secret. It is like walking into the British Museum. Consumers have to go through the doors and look for the information that they need. If we can put an AI front end on that, bring those golden nuggets of information and lay them before the consumer at the point where they are making a decision, we help that consumer make a more informed decision. That would be beneficial for consumers, the financial services industry and the UK as a whole.
Q79 Baroness Donaghy: Do you think that it is possible to have a comparison website that is just based on the quality of the product?
Johnny Timpson: That is a very good question. I am not sure I have enough experience to answer it. I do not think so, because it will always be a value judgment that individual consumers have to make, given their circumstances and available budget. There will be a trade-off between the available budget they have, the need that they have to address and the cost of the insurance solution that will resolve that issue, and indeed their confidence that if they have to claim on that policy—the moment of truth—that that insurer will deliver for them, and in a timely fashion.
I do not think that we could go by quality alone, but what we could certainly do is to make sure that consumers are more informed when engaging those comparison websites. I am conscious that you will be speaking to some of these groups shortly. Sheldon Mills has put a light on the fact that we could be using AI to help consumers with a more informed decision. The challenge I would like to lay before the aggregators is, “Go do it. Go pick up that opportunity”. I think that they, as organisations, would be delivering a far better service for the consumer.
Baroness Donaghy: You seem to put a lot of emphasis on the future of an AI assistant. I take it that is a bot. Being someone who had a row with a bot a few weeks ago on the telephone and had to ask six times whether it was a human being or a bot, it was getting a bit like that famous interview with Michael Howard on whether he sacked the head of the prison service. I did eventually get an admission that it was a bot. I am a little alarmed that you see this as something for the future that will help the consumer.
Johnny Timpson: To be honest, it is here and now, both in the UK and other countries. I find the work that I do in the energy sector quite interesting. The energy sector is making far greater use of those bots to support people than we are seeing in financial services so far. Indeed, I had a similar experience, where some firms have been using AI bots as a front end to their telephony systems. They need to move on very quickly from that, because it is detrimental, and I share your pain.
Q80 Lord Smith of Kelvin: Would standardising terms for insurance help to improve consumer outcomes or is that just not possible?
Johnny Timpson: I think so. Thank you for asking that question. In other roles, I am doing some work in the pensions sector at the minute. All that the vast majority of consumers in the pensions sector really want to do is to contribute to a pensions solution that is going to provide a wage for them in retirement. A lot of folks are not too concerned about the underlying investment funds that that default pension scheme has invested in, nor its charging structure. To some extent, this tells us that simplification works. If I take us back to the pre-aggregated world where we had analogue, you were buying your insurance from a broker, a bank or directly from an insurer, and even then we had maybe bronze, silver and gold versions of a policy, but there was clear delineation of what the differences were between those types of cover.
For me, having some default standard products is a good place to get to. As I say, if consumers want to buy bolt-on bits to personalise cover to meet their specific need, then great, they can do that—as long as it is made quite clear to them what the cover is, where it starts and finishes, what any warranties applying are and what they mean, what any excesses applying are and what the implications are, and whether that organisation will be making any additional charges should you ring up and want to alter the scope of the cover. There is too much of that and the charges are too high for my liking. Equally, transparency over the percentage of claims paid and the average duration of claim payment time would make for a better customer experience than we are seeing today.
Q81 The Chair: Thank you very much indeed for an interesting insight into the work you are doing and the work the panel is doing. Clearly, you have raised a number of issues that we will take some stock of. I was struck by your comments about the interest rate being charged, which you mentioned on two or three occasions. I have a very short question: what actual interest rate is currently paid and what do you think should be paid?
Johnny Timpson: I am conscious at the minute that a number of companies are charging 30% and more. Given that my own firm, which is basically supporting the military and veterans sector, has opted to have 0%, I think that a halfway house of maybe 12% to 15% would be quite reasonable. We should not be having credit card levels of premium credit charge.
The Chair: I hope that the insurance companies are listening. Thank you very much indeed for your work.
Johnny Timpson: Thank you.
The Chair: That closes the first session today.
