The Financial Conduct Authority has warned insurers that it will take regulatory action if they fail to demonstrate their products provide fair value for customers.
The FCA’s message comes just three weeks after the first anniversary of the Consumer Duty, which was launched last July.
The Duty requires firms, including insurers, to ensure consumers are at the heart of their business and must act to deliver good outcomes for them.
The regulator said since it has come into force, insurers and brokers have improved governance and oversight of how products are designed, managed, reviewed and distributed.
However, it noted that many insurers still cannot show how they are providing fair value to customers or that they were receiving good outcomes.
In a report published today (21 August), the FCA said: “We’re disappointed to see many insurance firms are not fully meeting their product governance obligations.”
The report assessed insurance manufacturers and distributors’ product oversight and governance arrangements against what is required under PROD 4.
FCA said it analysed information from 28 manufacturers and 39 distributors covering 10 different general insurance and pure protection products.
It looked at whether firms have assessed and can demonstrate their products and services offer fair value, effective product governance arrangements to meet the requirements under PROD 4 and taken effective action where products may not be providing the intended value.
The key findings of the report showed that many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes.
It also found most distributors do not fully understand their responsibilities to consider their remuneration, its interaction with the services and benefits they provide, and its impact on the product’s value.
And lastly, these failings can lead to harm.
The regulator also said in February it had agreed a pause in the sale of guaranteed asset protection (GAP) insurance with several firms following concerns the products were not offering fair value.
However, in May it permitted several GAP insurers to recommence sales following changes to their products.
Matt Brewis, director of insurance at the FCA, said: “Insurers need to make sure their customers are getting fair value. Progress is being made, but we are still seeing too many examples of insurers and brokers lacking the right information, governance or oversight to ensure their customers get consistently good outcomes.
“All insurance firms should take note of our findings and make improvements where appropriate.
“We’ll continue to take action where we see poor value so consumers can have confidence when buying insurance products.”
Pippa Tasker, a financial services Partner with law firm CMS, said: “It is not surprising the FCA is disappointed with the industry, given the regulator raised concerns about fair value in the insurance market and introduced rules to address it more than two years before the implementation of the consumer duty.
“This review is a clear indication that non-compliant firms should expect action from the FCA.”
