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In June this year, the FCA issued a discussion paper putting forward potential measures it felt might demonstrate add-on product value. Three specific measures were identified for consultation. These were publishing details on claims ratios; claims frequencies, acceptance rates and average pay outs; and claims ratios and acceptance rates.
We are concerned by aspects of the FCA discussion paper, including the ability of the proposed measures to take into consideration the full value of Legal Expenses Insurance (LEI) cover and the legal services provided – not just the legal fees paid to a solicitor. We have also questioned the inclusion of LEI within the scope of the regulator’s focus on these measures.
Recognising true value
Of the three measures contained in the discussion paper, it is understood that the FCA currently favours the publication of claims ratios or a combination of claims ratios and acceptance rates. While these may be potentially appropriate for most other forms of add-on products, we believe neither will capture the key data necessary to evidence the value of an LEI product to a consumer. Arc Legal has continued to raise questions about the value and relevance of publishing claims ratio data in relation to demonstrating the value of Legal Expenses Insurance products.
Fundamentally, the proposed measures will not take into consideration key aspects of the LEI proposition, such as the outcome of the consumer’s legal case, the impact of our commercial framework with solicitors, and the value of the legal services provided as part of the LEI policy.
The claims ratio measures will not capture aspects such as the fact our commercial framework with our panel solicitors may significantly understate the actual value and cost of the legal advice received by the customer, when compared to private arrangements they might enter into.
Example LEI policy claim
While the total solicitors’ cost to run the case came to £10,000, Arc Legal’s commercial framework with the firm on panel meant the cost under the Legal Expenses Insurance policy was only £1,400.
If we were to use the claims ratio as a measure of value, this would only appear as a £1,400 claim and not the overall value of the legal arrangements delivered under the policy.
Dedicated LEI value measure needed
By placing LEI within its scope, the FCA is categorising the product as the same as other, less complex classes of insurance such as guaranteed asset protection, personal accident and home emergency covers. We believe that this will not demonstrate the value of an LEI product to the consumer and that it should therefore, not be within scope of the proposed measures.
It is our opinion that there should be value measures specific to LEI, based on customer outcomes and representative of the value of the legal advice the customer has received, not limited to the amount physically paid to the solicitor under the insurance.
Arc Legal has been at the forefront of the sector in providing our distribution partners with the data and support they need to ensure add-on products are fit for purpose, and are understood by consumers. The level of data we are able to capture and the management information we provide to our partners, enables them to demonstrate the value of the product being sold to their customers.
To obtain a copy of the Arc Legal’s response to the FCA discussion document, please contact your Account Manager.