The impact of the Covid-19 pandemic has been wide reaching and, in many cases, has had a material impact on the value of the insurance products taken out by customers.
‘Product value’ refers to the quality and benefit that a customer receives from a product that they have paid for. The impacts of Covid-19 mean that some insurance products, taken out before the pandemic, no longer bring the intended value for customers. For instance, changed circumstances may mean that some insurance arrangements may not offer the same utility.
In June, the FCA set out its expectation that insurers and insurance intermediaries should review the products offered to consider the impact Covid-19 may have on product value. This process should have been completed by 3 December and now the FCA is carrying out a questionnaire with selected firms to assess the actions that have been taken.
Firms, which are product manufacturers or product providers, should have considered the impact of the pandemic on product value. This may include, for example, whether certain contractual benefits remained available during lockdown, or whether lockdown or other circumstances related to Covid-19 have had material effect on the risk posed by a consumer or commercial customer. For instance, a public liability policy may be of reduced value to a business that has been unable to open.
The questionnaire forms part of the regulator’s thematic review into product value. The FCA’s previous review (TR19/2) warned that if firms’ purpose and culture does not focus on customer outcomes and product value, there is a risk of harm in the market.
The regulator has previously set out guidance (FG19/05) on how product manufacturers and/or the product approval and review process should consider the value of products to customers. The Covid-19 pandemic, however, has posed new challenges in this area.
If you are selected to take part in the questionnaire, what sort of things do you need to think about in readiness for its completion?
- Have you assigned a Senior Manager the responsibility for oversight of the firm’s product manufacturing and distribution activities?
- Can you demonstrate (e.g., through minutes or board papers) that product value has been assessed and considered at board or management meetings?
- Can you explain and show the processes and rationale you followed to decide whether product level reviews were required?
- What methodology did you follow to assess how (and to what extent) a product’s value may have been materially affected by Covid-19?
- Can you demonstrate that appropriate action has been taken, or changes made, in light of your assessment? For example, can you identify affected policies?
If you have not completed your review, can you provide a good reason why not?
We know, there’s a lot facing firms at the moment but the FCA continue to be relentless. If you want to find out whether you are up to date with regulatory developments, why not sign up for our free, no obligation, regulatory horizon gap analysis?