FCA Warning to General Insurance Firms

The FCA has written to the CEOs of all authorised general insurance (GI) firms setting out their expectations regarding the fair treatment of customers in the manufacture and distribution of insurance products.

A thematic report has also been published, highlighting areas where the regulator has identified ‘significant potential for harm and poor outcomes for customers arising from the product development and distribution approaches in some sectors of the GI market.’

It is a requirement of the Insurance Distribution Directive (IDD), which came into force in October 2018, for all firms in the distribution chain to act honestly, fairly, and in accordance with the customer’s best interests. However, the regulator has stated that many firms have not acted appropriately and placed sufficient emphasis customer outcomes.

Doing so is especially important as the Senior Managers and Certification Regime (SM&CR) applies to GI firms from 9 December 2019 with the aim of making Senior Managers accountable for the actions of their firms. The FCA has warned that it ‘will not hesitate’ to act where firms fail to have appropriate regard to the value customers receive.

The FCA’s expectations for the behaviour of GI firms are laid on in the ‘Dear CEO’ letter as follows:

  • All GI firms must act fairly, honestly and professionally in accordance with the best interests of customers.
  • All GI firms should consider the value customers ultimately receive from their products and services.
  • All GI firms should maintain appropriate systems and controls over the remuneration they receive.
  • All GI manufacturers should have sufficient knowledge of the roles and remuneration of all entities in the distribution chains they use to be able to assess the impact they have on the value customers receive.
  • All GI firms must maintain appropriate systems and controls (including the production and use of appropriate management information) over their GI products and services. This includes when delegating authority to another business.
  • All GI distributors should consider the impact of their distribution strategy (including the distribution method and the level of remuneration they receive) on the overall value of the product for their customers.

It is expected that firms will read both the letter and the report and implement any changes where issues are identified.

The executive director of Supervision – Retail and Authorisations at the FCA, Jonathan Davidson, has 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.”

Clearly, this is an issue that the regulator is paying a great deal of interest in and firms would be advised to take note of what is expected of them.

If you have any concerns, please feel free to discuss the FCA’s warning with your Business Development Manager.

About the author

Bruce has worked in financial services for the whole of his professional life, including 11 years as a Compliance Director of a US owned Independent Financial Advisory and Wealth Management business. At RWA, Bruce leads the Audit and Conduct Risk department from our Manchester office. He is RWA's lead consultant to the Guernsey Financial Services Commission (GFSC).

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