Some interesting costs have been revealed after an FOI request;
Insurers and insurance intermediaries paid a total of £2.7 million for FCA-commissioned skilled persons reviews in the latest financial year, according to a freedom of information (FOI) request by strategic regulatory and risk consultancy Sicsic Advisory.
A skilled persons review, also known as a Section 166 report, is commissioned by the FCA to gain a deep and independent assessment of an area of regulatory concern or where it requires further analysis. The FOI disclosure is the first time the regulator has provided a breakdown between insurers and brokers, and the costs borne by firms in the insurance sector.
The FCA confirmed it had commissioned a total of eight reviews into general insurance and protection firms in the year to 31 March 2024.
“Skilled persons reviews can investigate a particular circumstance or topic, as well as into the firm more broadly if the FCA is not comfortable with something it has seen and wants to find the root cause. The latter are more problematic because they’re quite broad and can feel like a fishing expedition. They require a lot of preparation,” says Michael Sicsic, managing partner at Sicsic Advisory.
Of the eight commissioned last year, four were conducted by a skilled person chosen by the regulated entity, and another four were directly contracted by the FCA.
“The FCA generally decides to directly appoint a skilled person if there’s less of a relationship of trust with senior management and they want much more control of the whole process. We generally tell our clients this is a signal that they need to manage the relationship with the FCA in a better way,” Sicsic continued.
Of those directly contracted by the FCA, one was into an intermediary firm, and three into insurers. Firms paid £1,929,979 during the year in total. Of those conducted by a skilled person chosen by the firm under review, two were into intermediaries, and two into insurers, at a total cost of £783,540. The final figures will be higher, as some of the reviews continued into the current financial year.
Sicsic said internal costs to the firm to prepare and follow up from the s166 review can far exceed the review itself. “The skilled person is likely to ask for interviews and clarifications and take up a lot of senior management time. That can be a huge distraction or delay to other activities. Remediation may follow, such as a customer contact or redress programme,” he said.
The FCA has since confirmed that six s166 reviews into general insurance and protection were commissioned in Q1 2024/25 (1 April to 30 June 2024).
Sicsic said: “Sometimes s166 reviews can be imposed by the FCA because it isn’t clear about the nature of an issue. That highlights the importance of clearly communicating with the regulator pro-actively, such as informing them of an issue you’ve identified as well as your plan to address any problems that have arisen.
“We advise firms to treat every communication with the regulator as important. Often, we see Section 166 reviews begin because a firm has provided low quality or very narrow responses to a thematic review. Take the time to collate your data, understand what it shows before you send information, and explain it in the context of your broader business is a worthy investment of effort.”
The FOI response further revealed the FCA has six enforcement investigations open in the general insurance and protection sector, with two looking into firms and four into individuals. All investigations have been running for at least a year.
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