Two in five brokers don’t know how new fair value rules will affect their business
On the eve of the FCA’s fair value rules coming into effect, Ecclesiastical Insurance has published research revealing two in five brokers are in the dark about how fair value will affect their business.
Insurance firms and intermediaries have until 30 September to implement new rules on product governance, which apply to most insurance contracts including commercial insurance. The focus is on whether the products offer fair value to the customer and if the firm is acting in the customer’s best interest.
While the focus of the new rules is on insurers as product manufacturers, brokers will also need to demonstrate that they have adequate processes in place to ensure the customer receives fair value throughout the distribution chain.
These include considering the impact of remuneration on the overall value of the product, and receiving information from insurers on value assessments.
Yet it seems many brokers are still in the dark about how the new rules will affect them. When asked if they understand how the FCA’s focus on fair value will affect their business, 40% of respondents to Ecclesiastical’s survey disagreed with the statement, with over a third disagreeing strongly.
The research by the specialist insurer, carried out by FWD*, also asked brokers if they understand what the FCA means by fair value.
Two-thirds (64%) agreed that they did understand, but the picture changed when they were asked to define fair value. The 200 brokers surveyed gave 26 different definitions of fair value. The most popular definitions were:
- Customer paying a fair premium in relation to the cover/product they are getting (24%)
- Good value for money (16%)
- No dual pricing/Existing customers should get the same rates as new customers (14%)
- Good/best product for the client (12%)
- Treating Customer Fairly (9%)
The biggest impacts of the new rules to brokers, according to the survey, are greater reporting requirements to the FCA, ensuring processes are in place to evidence products being sold offer fair value to customers, and regularly reviewing and benchmarking products to ensure they deliver fair value.
Only half of brokers (51%) agreed the new rules would deliver better outcomes for customers, while even fewer (46%) agreed it would improve trust in the insurance industry.
Ecclesiastical has teamed up with RWA Business Consultancy to create a series of webinars and videos to help brokers understand what the new rules mean.
Adrian Saunders, Commercial Director at Ecclesiastical, said: “The FCA’s new product governance rules affect virtually all insurance products, and insurers and brokers alike will need to make significant changes to the way they do business. This is a major regulatory change and yet with the implementation date fast approaching, many brokers don’t fully understand how the new rules will affect their business.
“The concept of fair value is subjective, which bears out in our research findings with so many different definitions of what it means. Brokers need to interpret the rules to understand what it means for them and we believe distributors need to work more closely with providers to support them through this. As a trusted partner to brokers, we’d urge all businesses to get to grips with the new rules ahead of the implementation date.”
Kirk Ford, Deputy Head of Compliance at RWA, said: “Brokers need to work closely with manufacturers, and be aware of product characteristics and target markets. It’s important for brokers to consider how they demonstrate that they are ensuring fair value for their customers. The new product governance rules may have gone under the radar for some brokers, perhaps due to a focus on pricing practices – but time is running out as we approach the end of September. RWA is already working with new and existing clients to provide fair value assessment assistance.”
FCA focus on fair value causes confusion for brokers: https://www.insuranceage.co.uk/broker/7545846/fca-focus-on-fair-value-causes-confusion-for-brokers
Notes: FWD carried out research among 200 brokers Aug – Sep 2021