The latest from the FCA;
Insurance firms may not be ready to implement new product governance rules there to ensure insurance provides fair value, according to a review published today by the Financial Conduct Authority (FCA). As part of the FCA’s ongoing work to ensure consumers receive fair value, the review looked at how firms designed, sold and reviewed their products to ensure they met the needs of their customers.
The findings show that some firms had made good progress in meeting the FCA’s existing rules and guidance on product governance and value, issued in 2018 and 2019, as well as against temporary guidance on product value, issued in response to Covid-19 last year.
However, too many firms are not fully meeting the FCA’s standards. In addition, many firms are likely to be unprepared to meet new enhanced rules on product governance, which come into force on 1 October 2021. These new rules are part of a wider package of remedies introduced by the FCA to tackle the loyalty penalty and ensure that firms focus on providing fair value to all their customers.
The review found weaknesses including:
- Insufficient focus on customers, outcomes and product value, including when considering value in the context of Covid-19
- Shortcomings in governance and oversight of products
As an example, it was not always clear firms have adequate processes in place to assess whether intermediary remuneration (such as how much a broker is paid) bears reasonable relationship to the costs or workload to distribute the product as set out in previous guidance and required under the rules applicable from 1 October 2021.
Sheldon Mills, Executive Director for Supervision, Policy and Competition at the FCA, said:
‘We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready.
‘Where firms are not consistently meeting existing requirements and expectations, it risks harm through poor value products or products being sold to the wrong customers. These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.’
The FCA’s enhanced product governance rules were introduced following its General insurance pricing practices market study which found home and motor insurance markets were not working well for consumers, particularly loyal customers. The rules are designed to ensure that firms have processes in place to deliver products that offer fair value to customers (all non‑investment insurance contracts, not only home and motor insurance).
James Dalton, ABI Director, General Insurance Policy says:
“This is a useful stocktake of firms’ approaches to product value, particularly in the context of Covid-19. As the FCA acknowledges, the review found that most insurance products maintained their core utility and value during what has been an exceptionally challenging period for both customers and firms. The FCA also recognises evidence of good customer value including through premium refunds, extension of cover, individual customer support and the industry’s charitable donations through the ABI’s Covid-19 Support Fund.
“Since the data was collected for this review, significant work has continued to take place across the industry to meet the enhanced product rules and the new governance rules scheduled to come into force in October and the new pricing rules due to be introduced by January. Together, these substantial reforms emanating from the GI Pricing Practices Market Study are a once in a generation opportunity to improve customer outcomes across the industry. Inevitably, whilst some firms will be more advanced than others in preparing for the new rules, all our members are fully committed to continuing to work with the regulator to ensure change is delivered on time.”