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Incentives

What are incentives?

An incentive scheme can be defined as a formal plan designed to encourage or promote specific behaviour for which a company would provide a reward to recognise good performance. It can include not just monetary rewards but also others such as gifts, event tickets or hospitality. Common industry incentives for broker account executives or handlers, and also their team managers/directors, include:

  • Trigger payments through end client take up of a specific finance/credit arrangement
  • Cross selling new products, or even take up of non-insurance services for clients such as inhouse or preferred risk management consultancy, legal services etc.

For all incentive programmes the FCA will expect brokerages to guard against customer harm.

Key components of an incentive scheme

Purpose and Objectives

Your incentive scheme should be designed to clearly explain the link between your scheme metrics and your company goals.

Design

Your incentive programme should incorporate the quality of the service delivered by your customer facing teams to ensure that fair outcomes and good customer journeys are achieved and there is no customer detriment. The scheme should be clearly articulated and understood by staff.

Application

Focus on metrics that ensure a good customer journey/outcome and steer clear of things that could undermine this, i.e. measuring time spent on calls encourages employees to complete calls quickly rather than ensuring that customers’ needs have been met. A focus on your Quality Assurance outputs would promote and encourage a good customer outcome/journey.

Controls

MI should be regularly produced and reviewed to ensure the incentive scheme is not encouraging poor behaviour at the expense of customers. The scheme should be simple enough so that it can be effectively overseen.

Key areas of conduct focus

  • Incentivisation should not encourage your employees to recommend a particular insurance product to a customer when an alternative insurance product would better meet the customers’ needs.
  • FCA Principle 8 - A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

Consumer Duty expectations

  • A firm must act in good faith towards retail customers. Conduct is characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of customers.
  • Avoid causing foreseeable harm by ensuring that no aspect of business involves unfairly exploiting behavioural biases displayed or characteristics of vulnerability held by customers.
  • A firm should not use staff incentives, performance management or remuneration structures in a way that conflicts with their obligations under Principle 12 and PRIN 2A. Firms should be aware that these structures are capable of causing harm to customers and should design their structures in a way that is consistent with ensuring good outcomes for retail customers.
  • Consumer Duty | FCA

Questions to ask

  • Is there a risk that the way in which your employees are remunerated may cause them to act in a way that benefits them but leads to bad outcomes for customers?
  • How would you spot such activity - for example an increase in business in the run-up to a deadline that could impact on an employee’s earning?
  • Do you need to undertake extra monitoring for potentially suspicious or unusual activity, or extra monitoring for employees who achieve increased levels of business (and hence increased levels of remuneration)?
  • How do you proactively look to identify where customers could be misinformed or wrongly advised in a face-to-face conversation, which can be more difficult to monitor?
  • Have you implemented any additional governance and monitoring for team managers or directors who also receive variable bonus payments based on the sales delivery of their team?

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