"If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator."
- Matt Brewis, director of insurance at the FCA
Following the publication of last year’s general insurance (GI) value measures data, the Financial Conduct Authority (FCA) was concerned that individual firms or products were not providing fair value. The FCA’s latest data and ongoing interactions with firms confirm these concerns haven’t been resolved, leading to the financial watchdog writing letters to various insurers stating that they don’t think they are likely to be meeting its PROD rules or providing fair value to customers.
These firms have been given a month to propose how they will address the position and where firms are not able to demonstrate their compliance, the FCA will consider using its regulatory powers. Boards have been warned to take note of this action and make sure they are meeting their product governance requirements across all retail propositions.
The FCA has stated that ‘value’ is the relationship between the overall price to the customer and the quality of service or benefit provided. As such, the financial authority is concerned about the extent and quality to which insurance firms have implemented and embedded this relationship, whether firms are able to show that their product value assessments correlate with its rules and what’s been done to combat deficiencies in product governance.
Alongside these concerns, the FCA has seen “what would appear to be high commission levels,” where it wasn’t clear how products were assessed to show they were consistent with fair value. For example, it has seen high levels of commission in distribution chains for what appears to be standard non-advised sales.
Likewise, the FCA reported a much lower proportion of premiums paid out as claims for some add-ons compared to the corresponding standalone product. It suspects firms may be taking an inconsistent approach to reporting products as add-on or standalone.
Addressing these concerns is a key focus over the coming months; the FCA will comment further on the action its taken.
Commenting on these findings, Matt Brewis, director of insurance at the FCA, has said:
“This is an early signal of the work we’ll be doing under the Consumer Duty. Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided. If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.”