Jessica joined RWA in 2018, having graduated with a First Class Honours degree in Film Studies. Her role as a content designer involves developing new and engaging e-learning modules as well as assisting in the creation of articles for Insight.
FCA Issues ‘Dear CEO’ Letters Following Latest Fair Value Data
This week, the Financial Conduct Authority published its data for general insurance value measures between January and December 2022. One major concern for the FCA is that some Guaranteed Asset Protection (GAP) products – an add-on for motor insurance- were failing to provide fair value.
Key areas for concern highlighted in the data were:
- discriminatory pricing practices
- undervaluation of motor insurance claims
- failure to implement general insurance pricing practices
- inadequate practices for identifying vulnerable customers
- poor business interruption claims handling, and
- instances of ‘friction’ barriers, including very long waiting times and settlement delays.
According to the FCA data, only 6% of the amount customers pay in premiums for GAP insurance is paid out in claims. The FCA has also reported examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as motor dealerships.
Coinciding with the publication, ‘Dear CEO’ letters have been sent out to insurers reminding them of the FCA’s expectations to ensure good outcomes for consumers. The regulator has also given firms that offer GAP insurance products a three-month deadline to improve the value of their products and services, and that it will take further action on firms that fail to do so.
The importance of fair value is about more than just price, value should include considerations for the quality and benefits of the product or service. Firms should already be meeting their obligations set out under PROD4 and the Consumer Duty to regularly monitor and assess the value of the products and services they provide.
However, based on the results of the data, the FCA has expressed concerns regarding the “overall extent and quality” to which insurance firms have implemented and embedded these rules.
The FCA also suspects that some companies may be misunderstanding reporting requirements, as well as misinterpreting the difference between 'add-on' and 'standalone' products. Data shows that some add-ons have a significantly lower percentage of premiums paid out as claims compared to corresponding standalone products. The regulator has addressed that in light of this, it will engage with firms prior to the next data collection to clarify these areas of confusion.
To read the full report, click here.