Since its introduction by the Financial Conduct Authority (FCA), Consumer Duty has reframed how firms must approach customer outcomes, and placed a heightened emphasis on fairness, transparency and demonstrable value across financial products and services. And while much of the initial focus has centred on mainstream insurance and retail finance, its implications also extend into the litigation funding ecosystem, including the use of after the event (ATE) insurance.
For solicitors and insurers alike, this raises a more nuanced question – to what extent does the use of ATE insurance align with Consumer Duty requirements, and where might compliance risks emerge?
Let’s find out…
Fair value and transparency in ATE arrangements
At the core of Consumer Duty is the requirement for firms to ensure that products deliver fair value, meaning that the price paid by the customer must be reasonable relative to the benefits received.
In the context of ATE insurance, this introduces a need to look beyond headline premiums and consider the overall structure of the policy, including deferred or contingent premiums, staged pricing and the scope of cover provided.
Plus, where policies are complex or costs are only triggered in certain outcomes, there is also an increased obligation to ensure that clients are able to clearly understand:
- The total potential cost of the policy
- What is and is not covered
- And how the premium interacts with their wider funding arrangement
In this sense, policy wording and client communications must also be accessible, transparent and capable of supporting informed decision-making without reliance on specialist interpretation too.
Preventing foreseeable harm through adequate protection
Another central pillar of Consumer Duty is the proactive identification and mitigation of foreseeable harm, as within litigation, adverse costs exposure does in fact represent one of the most significant financial risks a client may face.
Here, ATE insurance is often positioned as a mechanism to manage this exposure, however, from a Consumer Duty perspective, the existence of a policy is not in itself enough, and the level and structure of cover must be sufficient to meaningfully protect the client against the potential downside of an unsuccessful claim.
As a result, this introduces important considerations around:
- Cover limits relative to likely adverse costs
- The inclusion or exclusion of disbursements
- And any conditions that may restrict the policy’s responsiveness
This is because if an ATE policy is in place but fails to adequately respond in a reasonably foreseeable loss scenario, questions may be asked as to whether the product genuinely mitigated harm, or simply created a perception of protection in the first place.
Supporting vulnerable clients in complex funding decisions
Consumer Duty also places specific emphasis on the identification and support of vulnerable customers, recognising that some clients may have reduced capacity to understand or engage with complex financial decisions.
Litigation funding and ATE insurance in particular, can involve layered legal and financial considerations, which makes clear explanations absolutely critical to ensure that clients must be able to understand not only the existence of adverse costs risk, but also the practical implications of proceeding with or without insurance too.
For firms, this means taking the following steps where necessary:
- Adapting communication styles to suit client need
- Providing clear, structured explanations of risk and protection
- And ensuring that decisions are not driven by urgency or incomplete understanding
If not, the absence of clear, tailored communication around ATE insurance where vulnerability is present may create both compliance and conduct risk, particularly if outcomes later prove unfavourable.
The challenge of closed or legacy ATE products
Consumer Duty does not apply solely to new business, as firms are also required to review and assess the ongoing suitability and value of closed or legacy products.
For ATE insurers, this creates an obligation to evaluate whether existing policies, including those no longer actively marketed, continue to meet the standards of fair value and customer outcome expectations.
This may involve reviewing:
- Premium structures in light of current market conditions
- The adequacy of historic cover limits
- And whether policy terms remain fit for purpose
If at any point deficiencies are identified, firms are then expected to take proportionate action such as remediation, communication or, in some cases, product redesign considerations.
Demonstrating suitability and alignment with client outcomes
A further key aspect of Consumer Duty is the ability to evidence that products are suitable for the target market and aligned with individual customer needs, as within litigation, this places an increased burden on legal professionals to ensure that any ATE policy recommended or arranged is appropriate for the specific circumstances of the client and the claim.
This extends to:
- The nature and complexity of the dispute
- The client’s financial resilience and risk appetite
- And the broader funding structure in place
Though most importantly, this is not only a question of whether ATE was offered originally, but it is in fact whether the selected product meaningfully supports the client’s litigation objectives while managing downside risk in a proportionate way.
A compliance framework rather than a product consideration
Ultimately, Consumer Duty repositions ATE insurance as a wider compliance and governance framework centred on customer outcomes, and for firms operating in this space, the key issue is not about whether ATE insurance is used, but its role within the client journey can withstand scrutiny across the Duty’s core principles, including fair value, transparency, harm prevention and suitability.
What’s more, as regulatory expectations continue to evolve, ATE insurance is also likely to become an increasingly important touchpoint in demonstrating how litigation risk is communicated, managed and mitigated in a way that aligns with modern conduct standards.
In other words, when firms ask themselves:
Do our products deliver outcomes that are demonstrably fair, appropriate and in the client’s best interests from the outset through to conclusion?
The answer needs to be yes, or they will face the risk and consequences of non-compliance.
If you would like to review how your current approach to ATE insurance aligns with Consumer Duty requirements, our team here at amberis are here to support that conversation.