Insurance is a product that is often sold on commission, or has two or three companies involved in underwriting risk, managing a broker network or working with comparison websites. The FCA want to make sure consumers are getting good value and that nobody in the `food chain’ is taking too big a bite from the cherry. Here’s the latest;
The recently implemented Insurance Distribution Directive requires that all firms in the GI distribution chain act in accordance with the best interests of the customer. The recently implemented Senior Manager and Certification Regime is designed to make Senior Managers accountable for the actions of their firms. The FCA is warning the industry that it will not hesitate to intervene with both firms and their senior managers on these bases where it sees a failure to have appropriate regard to the value their ultimate customers receive.
GI products are key to giving UK consumers and businesses the security and stability to go about their daily activities with confidence. It is therefore essential that they can access high quality, good value insurance products.
Some GI distribution chains involve only one or two parties (e.g. a direct insurer or an insurer and an insurance broker) but others can include multiple parties. The report highlights how the remuneration of all the parties in the distribution chain can result in customers paying significantly higher prices than the production and delivery costs of the products they are buying. In some distribution chains, there can also be a high risk of unsuitable sales, for example, where the distributor is selling insurance alongside a non-financial product like a car, white goods or a holiday.
The FCA has published two reports in recent years which highlighted failings in the governance and control of GI distribution chains, including over outsourced arrangements (in 2015 on Delegated Authority and in 2016 on Appointed Representatives). While some progress has been made since, today’s report outlines that significant potential for customer harm remains. The issues identified in the report indicate many firms lack sufficient focus upon customer outcomes and need to address this urgently to mitigate the potential harm to customers.
Jonathan Davidson, executive director of Supervision – Retail and Authorisations, at the FCA said:
‘Through our recent work we have continued to see poor manufacturing, sales and distribution approaches leading to sales of low value and inappropriate products, unfair treatment of claims and service issues.
‘The widespread extent of these issues demonstrates a culture which pays insufficient regard to customer outcomes in some parts of the general insurance sector. We are going to carry out further supervisory work to make sure that firms meet their obligations and will not hesitate to use the full range of our regulatory powers.’
The FCA expects all firms to review the findings and the expectations set out in the report and accompanying proposed guidance to identify any issues applicable to them, and to act immediately to address these. The FCA has also written to the CEOs of all authorised GI firms to share these findings and its expectations.
Reaction to the FCA announcement has been very positive from the industry;
Matthew Drage, Head of External Engagement at Huntswood, said: “Regulatory focus on the insurance sector remains high, but appropriately so with initiatives such as the Insurance Distribution Directive and the SMCR increasing transparency and protection for the customer.
Firms should see this warning from the FCA as an opportunity to ensure that the best interests of the customer are always considered and that they do not fall short on delivering value. Doing so will ensure that their customers remain loyal and that unnecessary regulatory scrutiny is avoided.”
Tony Tarquini, European director of insurance at customer engagement software provider Pegasystems notes: “While this relates to a minority of organisations in the insurance industry, it is designed to be a wake-up call for the entire market, which arguably suffers from an industry-wide trust and reputational problem.
He continues: “Mainstream insurers know they must improve customer service and they are going through the heavy lifting of changing their business processes to design out poor or bad customer service. Insurers need to focus on the concept of embedding treating customers fairly (TCF) into rules-based technology to ensure that their organisations can minimise the chances of poor service or worse happening as part of business as usual. The insurance distribution directive (IDD) is also something that should be embedded into general day-to-day activities in insurers’ customer bases.”