The introduction of a new piece of legislation for financial institutions has put vulnerable consumers in the spotlight. The Conduct of Financial Institutions (CoFI) Act mandates that registered banks, licensed insurers and licensed non-banks treat consumers fairly. To comply with the Act, financial institutions must have systems and processes in place to better protect customers by March next year. This includes addressing the needs of vulnerable customers.
Vulnerability, however, is a nuanced concept. There is no one type of vulnerable person and everyone has an inherent level of vulnerability. For financial firms, this is an opportunity to challenge stereotypes and, ultimately, unlock unexpected business outcomes. By redefining traditional understandings of vulnerability, firms can gain a competitive advantage.
The limitations of stereotypes
To understand the opportunities at play, we must first understand the limitations of industry definitions towards vulnerable people. Traditionally, customer vulnerability has been seen as somebody susceptible to financial harm – owing to factors such as age, borrowing history or other life circumstances. The Financial Markets Authority (FMA) defines a vulnerable consumer as “someone who, due to their circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” This industry definition, however, is narrow.
In this context, the term 'vulnerable' carries negative connotations. It implies weakness or dependence. It’s a definition influenced by stereotypes and assumptions – instead of the lived reality of individuals or communities. It means that, in an industry defined by risk management, vulnerable consumers are categorised as higher risk. As people who need protection. In reality, however, the needs and experiences of this group are diverse and evolving – and at some time in their lives, every consumer may be considered ‘vulnerable.’
Redefining vulnerability
Being 'vulnerable' is not a static state, it’s something that’s influenced by many factors. Job loss, natural disasters and medical emergencies can put people in temporary financial vulnerability – but they may not identify with this label long-term. Rigid definitions of vulnerability negatively influence individuals in these circumstances as they are seen as having a heightened "risk" – despite the reality being more complex.
For some disabled people, 'vulnerability' can easily be mitigated if products and services are made accessible. Barriers such as complex digital interfaces, inaccessible apps and jargon-filled information make it harder for some individuals. These barriers only serve to reinforce vulnerability, rather than remove it.
For others, 'vulnerability' influences risk assessment, which increases insurance premiums. Take driving as an example. Some disabled people require modifications, like hand controls, to make their cars suitable to drive with their impairment. The problem is that there is no car insurance category for modifications due to accessibility requirements – only modifications in general. This means that modifications for accessibility are categorised alongside street-racer or performance modifications, putting an unfair disadvantage on the disabled person because the risk profile of this group, in general, is high. As a result, disabled people’s car insurance may cost more due to a risk profile that doesn’t truly represent them or account for context.
Traditional definitions of vulnerability are too broad and all-encompassing. And, while this may be seen as an additional challenge to the industry, it is also an opportunity. A chance to unlock strength and grow new market segments.
Rebecca McDonald speaking at a conference
The benefit to business
A quarter of New Zealand's population identifies as disabled. That's a significant market segment. The financial opportunity is also clear – globally, the disabled community is estimated to represent $8 trillion a year in disposable income. Yet this is still a largely untapped market, even though designing for disabled communities often benefits broader categories of consumers.
So, how can firms better address the needs of these communities? It starts by getting to grips with the reality of vulnerability – and the nuanced ways this shows up in a customer base. In other words, it starts with challenging bias. To better understand the unique risk profiles of individual customers, firms must connect with, and learn from, the different communities labelled as vulnerable. This is in line with FMA recommendations – "It is important that a firm has a consistent, comprehensive and evolving understanding of potential customer vulnerabilities and how it expects its staff to address these vulnerabilities."
For firms, this is an opportunity to better meet the needs of their customers and deliver more accurate, equitable pricing. Something that aligns with a broader industry shift towards personalisation as predicted by McKinsey&Company – "Personalization—or reaching customers with targeted messaging, offers, and pricing at just the right time—is the future of insurance marketing."
It's a chance to develop tailored products and services. Products that resonate. That deepen relationships with consumers, strengthening loyalty and, therefore, unlock competitive advantage. This could include bespoke solutions such as tailored financial advice, accessible communication channels or simplified app interfaces. Products and services which enhance the ability of disabled consumers to manage their finances confidently and independently.
Providing information in accessible formats to people with learning disabilities, for instance, will mean that these individuals don't have to rely on third parties – increasing their vulnerability. Models like this, which focus on accessible design, inclusive service options, and personalised support will also serve to reduce vulnerability and, in doing so, will enhance customer trust and loyalty. For firms, this is an opportunity to position accessibility as a core business strength.
Ultimately, by gaining a deeper understanding of vulnerability and tailoring customer experience, products and services to the unique and varied needs of different groups labelled 'vulnerable', firms could unlock broader business outcomes. From more equitable pricing to innovative new product offerings that drive growth. It's an opportunity to challenge and leverage the disability economy while creating a more inclusive and sustainable future for all.