Recent FCA focus on insurance

• Intermediary-led products: The FCA referenced its 2024 Thematic Review of Product Oversight and Governance (TR 24/2) in the Policy Statement as justification for not allowing intermediaries (such as MGAs) to be lead manufacturers of insurance products. The FCA referred to its findings in the thematic review that where products are developed and designed by intermediaries, it was more likely that firms could not demonstrate these products delivered fair value and good outcomes. Firms should expect a continued focus on “intermediary-led” products.
• Comparing products: In the FCA’s Pure Protection Market Study Update, the research identified that customers have difficulty comparing policies and prices. In the Which? Response the FCA referenced the feedback it has given to the four largest price comparison websites on their sales processes. Now is a good time to review customer journeys to make sure the benefits and price of products are clear to customers, balancing between reducing friction in sales processes and ensuring good customer understanding.
• Ensuring distribution chains add value: In its Toolkit Webpage, the FCA described an example of a firm using intermediaries in a way that created barriers to people making claims. Firms should ensure the use of intermediaries in distribution channels enhance the customer experience. The Policy Statement highlighted the importance of insurers and intermediaries working together to ensure both firms are able to comply with their respective obligations. We have been working with our insurance intermediary clients to enhance their distribution agreements to provide for clearer allocation of responsibilities to assist all parties in demonstrating how they add value.
• Appointed representatives: In 2024, the FCA enhanced its expectations of principal firms overseeing appointed representatives. In the Which? Response, it uses a case study where it required a firm to terminate its relationship with an appointed representative acting as a claims consultant and loss assessor due to poor oversight. It prohibited the firm from appointing any new appointed representatives. Oversight of appointed representatives remains a focus for the FCA.

‍

• Complaints and claims acceptance can indicate low levels of understanding: The FCA takes action based on the data it collects. In the Which? Response it highlights complaint numbers and claim acceptance rates in the home and travel insurance sector show firms must do more to meet the Consumer Duty. In particular, the FCA believes this partly reflects lower levels of customer understanding. Firms that have high complaints levels or low claims acceptance rates should be prepared for scrutiny from the regulator.
• Testing customer communications: The FCA is currently testing how, and if, the changes firms have made to communications following the implementation of the Consumer Duty are affecting the way consumers are making decisions. The FCA is now expanding this testing to home and travel insurance firms.
• Communications on renewal: In the Toolkit Webpage, the FCA highlighted an example of a firm changing home insurance policies at renewal without telling customers clearly. The firm has had to pay £350,000 in redress (so far) for 2,500 customers and improve its future communications. This highlights the potential consequences of failing to ensure customer communications are clear and support consumer understanding.

• FCA action: In the Which? Response, the FCA states it has opened two enforcement investigations and commissioned three skilled person reports into claims handling systems and controls. Enforcement action and skilled person reports are expensive and time-consuming for firms. It is in the interest of firms to ensure claims handling systems and controls are robust to avoid any FCA intervention.
• Focus on outsourcers: The FCA has highlighted persistent weaknesses in firms’ oversight of outsourced claims handling providers and so we expect the FCA will be focusing on the use of outsourced providers over the next year.
• Claims monitoring: In the Toolkit Webpage, the FCA used the example of a firm that failed to provide adequate support in relation to its home emergency cover which made changes that led to better outcomes for vulnerable customers and reduced complaints by 61% over 2 years. It is likely the firm came to the attention of the FCA given the high complaints volumes, which demonstrates the importance of carefully reviewing the data that is provided to the regulator and carrying out root cause analysis to identify potential issues before they come to the attention of the FCA.

• Focus on fair value: The FCA referenced its 2024 Thematic Review of Product Oversight and Governance (TR 24/2) in the Policy Statement. The findings of the thematic review identified ineffective product governance frameworks under PROD 4, shortcomings in fair value assessments, lack of granularity in identifying the target market and a lack of understanding of distribution arrangements. The FCA’s reference back to this review indicates it still considers there is further work for firms to do in this area. The FCA has stated it will engage with firms where value measures data identifies them as an outlier.
• The link between fair value and target market: In its Pure Protection Market Study Update, the research identified that some customers have to compromise on their choice of policy due to affordability and health concerns and, as a result, they have policies that don’t exactly meet their needs. Firms should be reviewing their products to make sure they meet the needs of the target market.