“Aim low, aim so low that when you achieve your goal, even you will be disappointed”. Homer Simpson
The FCA unveiled its 2018/19 business plan last month. The plan focuses on the regulatory work involved in preparing for Brexit. Consequently, the regulator has less capacity to implement new initiatives and instead the majority of the insurance activity revolves around completing work already in progress. A summary of some of the relevant elements of the business plan is set out below.
From Q2 2019 the FCA is to take over the regulation of Claims Management Companies (‘CMCs’ currently regulated by the Ministry of Justice). To prepare for this the FCA is producing a framework of rules as well as an information package for CMCs in order to prepare them for the new regulatory supervision. Related to this the FCA has said that they will “carry out diagnostic work to assess how far brokers and motor insurers are inflating claims through referrals to CMCs and keeping volume discounts from their own repairers”. This is the FCA’s sole ‘new’ 2018/19 objective.
Of the ongoing projects, the FCA intends to continue its review into distribution chains (an objective which appeared in its 2017/18 business plan) and the FCA will publish the first phase of its diagnostic in Q2 2018. The review intends to analyse whether and how the value of insurance products is eroded throughout the distribution chain as a result of poor oversight and outsourced activities. Similarly, the FCA intends to continue its research into the functioning of the wholesale insurance broking sector. The review is to ensure that there is adequate competition and innovation ensuring the diverse interests of clients are adequately serviced. The aim is to ensure that brokers are obtaining appropriate cover that suits clients’ actual needs and are not simply offering ‘one size fits all’ policies. Results of this investigation are expected in Q3 2018.
One of the main activities of the FCA throughout the year will be overseeing the implementation of The Insurance Distribution Directive (IDD). The IDD will update the European framework that regulates brokers and agents and will replace the 2002 Insurance Mediation Directive. The IDD will have less of an impact within the UK than other European countries as many of its provisions mirror those already in place in the UK. The FCA is putting in place a set of rules to implement the IDD; among these is a new ‘customer best interest’ rule which requires insurance distributors to act honestly, fairly, professionally, and in the best interests of their clients. The new rules will also prevent any remuneration or performance management practice that would conflict with the customers’ best interest.
The 2018/19 business plan also includes a number of cross-sector objectives; one of which is the implementation of The Senior Manager and Certification Regime (SMCR). This will apply (in part) to all regulated firms by December 2018 and fully in 2019. The purpose of this is to ensure that key staff are accountable for their conduct and decisions.
For further information regarding this topic or any other professional negligence matters please contact Roger Franklin, Partner, or any member of the Edwin Coe Insurance Litigation team.