The insurance industry plays a fundamental role in safeguarding individuals, families, and businesses from risk. From health and life insurance to property and auto coverage, these services offer peace of mind and financial resilience in the face of uncertainty. But at the heart of every insurance policy lies a vital principle — trust. For trust to flourish, insurance providers must consistently demonstrate a fair and ethical approach in their treatment of consumer customers.
In recent years, the principle of fair treatment of customers has evolved from a vague ethical ideal into a core regulatory expectation. Financial authorities around the world, from the European Insurance and Occupational Pensions Authority (EIOPA) to the International Association of Insurance Supervisors (IAIS), have developed robust standards that codify how insurers should act to protect and prioritize the interests of policyholders.
This article explores the core elements of fair customer treatment in insurance, the regulatory frameworks driving change, the challenges insurers face, and the steps they must take to ensure equitable, transparent, and trustworthy service throughout the customer journey.
Defining Fair Treatment of Customers
The fair treatment of insurance customers refers to a company’s ability to act honestly, transparently, and in the best interest of policyholders throughout all phases of the insurance lifecycle — from product design to claims settlement.
This includes:
Offering suitable products that meet customer needs
Providing clear, accurate, and timely information
Ensuring customers can make informed decisions
Handling claims promptly and fairly
Resolving complaints efficiently and justly
Protecting customer data and privacy
Fair treatment is not merely a box-ticking exercise. It is a foundational component of customer-centric culture, long-term sustainability, and reputation management in the insurance sector.
Regulatory and Ethical Foundations
- International Frameworks
The IAIS Insurance Core Principles set global standards for insurance regulation, with Principle 19 specifically focused on “Conduct of Business,” requiring insurers to treat customers fairly throughout the insurance relationship. - European Union Standards
In the EU, EIOPA has made the fair treatment of customers central to its consumer protection mandate. Key regulations include:
Solvency II Directive: Insurers must have proper governance to prevent conflicts of interest and promote fair treatment.
Insurance Distribution Directive (IDD): Requires product suitability assessments, proper disclosures, and staff training.
Sustainable Finance Disclosure Regulation (SFDR): Extends customer fairness to environmental and social risk disclosures.
- National Supervisory Expectations
In the UK, the Financial Conduct Authority (FCA) introduced the Consumer Duty, which compels financial firms to deliver “good outcomes” for retail customers — a significant shift from mere compliance to proactive fairness.
Dimensions of Fair Treatment
- Product Design and Suitability
Insurance products must be designed with the target market’s needs, risks, and understanding in mind. Misaligned products — such as complex investment-linked life insurance sold to low-risk-averse retirees — are often signs of poor fairness practices.
Insurers should:
Conduct Product Oversight and Governance (POG) processes
Regularly review whether products meet real-world needs
Use inclusive and accessible product language
- Sales and Disclosure Practices
Customers must be equipped with all relevant information to make informed decisions. Misleading marketing, hidden exclusions, or buried fees are among the most common fairness failures.
Best practices include:
Using plain-language policy documents
Disclosing key risks, benefits, and limitations
Avoiding high-pressure sales tactics
Ensuring advisers act in the customer’s best interest
- Claims Management
The claims process is the moment of truth in insurance. A fair approach includes:
Clear communication about how to file a claim
Realistic expectations about timeframes
Objective, timely, and transparent claims handling
Avoiding undue delays, excessive documentation requests, or unjust denials
Unfair claims handling not only causes customer distress but also attracts regulatory scrutiny and reputational damage.
- Complaint Resolution and Redress
Even with best efforts, disagreements happen. But how insurers manage complaints and redress is a critical measure of fairness.
Fair treatment requires:
An accessible and transparent complaints procedure
Timely acknowledgment and response
Proportionate remedies where the insurer is at fault
Root-cause analysis to prevent systemic issues
Many jurisdictions mandate insurers report complaint volumes and resolution outcomes as part of conduct supervision.
- Data Protection and Digital Fairness
As the industry digitizes, new fairness frontiers emerge around data use, pricing algorithms, and digital exclusions.
Insurers must:
Collect and use customer data lawfully and ethically
Ensure non-discriminatory underwriting models
Provide alternative access channels for digitally excluded customers
Prevent AI or algorithmic bias that results in unfair premium pricing
Challenges to Fair Customer Treatment
While the ideals are clear, implementation faces several real-world hurdles:
- Profit Pressures and Sales Targets
Some insurers operate under aggressive growth mandates that incentivize short-term sales over long-term suitability, leading to product mis-selling and fairness risks. - Complexity of Products
Insurance contracts can be difficult to understand, even for educated consumers. Simplification efforts must balance legal precision with customer comprehension. - Fragmented Distribution Channels
Intermediaries and brokers may not always align with the insurer’s fairness philosophy. Insurers must actively monitor and enforce distribution conduct standards. - Legacy Systems and Data Gaps
Old systems can hinder real-time transparency, slow claims, and make personalized treatment harder. Investing in customer-centric technology is essential.
Building a Culture of Fairness
Fair treatment isn’t just a compliance function — it’s a corporate value. To embed fairness deeply, insurers should:
Train all staff, not just frontline agents, on customer-centric ethics
Build KPIs around customer satisfaction, retention, and complaints
Appoint conduct risk officers to oversee treatment metrics
Use voice-of-the-customer feedback to drive improvements
Regularly assess vulnerable customer outcomes and develop protection strategies
Future Outlook: From Compliance to Customer Advocacy
As regulators tighten expectations and consumers grow more discerning, insurers must shift from reactive compliance to proactive customer advocacy. This means designing from the consumer’s perspective, anticipating potential harms, and committing to transparency in every interaction.
Emerging areas include:
Personalized disclosures and behavioral nudges to aid decision-making
Enhanced focus on financial inclusion and vulnerable customers
Sustainability-linked insurance products that balance ESG and fairness
Ethical AI governance to ensure algorithms don’t disadvantage certain groups
Conclusion
The fair treatment of insurance consumer customers is no longer a peripheral concern — it is a strategic, ethical, and regulatory imperative. As the insurance landscape evolves, fairness must remain the compass that guides every interaction, from policy inception to claims settlement.
By embedding fairness into governance, operations, and culture, insurers not only meet regulatory expectations but also build lasting relationships of trust and loyalty with their customers. In doing so, they ensure that insurance remains not just a product of protection, but a partnership rooted in integrity.
