The Financial Conduct Authority’s review into insurance and protection shows it "patience is wavering” over distributors failing to meet their regulatory obligations, according to Protection Guru head of research, Adam Higgs.
The FCA's review, ‘Product Oversight and Governance thematic review – General Insurance and Pure Protection’, examined whether firms were meeting their product governance obligations for general insurance and protection products.
It found many product manufacturers did not appear to have implemented effective product governance frameworks, meaning they were unable to adequate evidence how and why they concluded their products offered fair value.
Higgs commented that, as with all things, “regulation is not good enough to just be doing things correctly, you must be able to evidence this and as such appropriate management information is more important than ever”.
“The FCA’s language in expressing their disappointment at how many manufacturers and distributors are ‘failing to meet their regulatory obligations’ suggests that their patience is wavering, and more serious action could follow if issues are not remedied.
“A year since its inception, they clearly expected firms to have done more in their consumer duty implementation, especially when evidencing fair value.”
Higgs said the review serves as a reminder to both insurers and intermediaries that the regulator will continue to monitor firms progress and expects to see clear evidence that products and recommendations are delivering fair value and good consumer outcomes.
Additionally, CIExpert director, Alan Lakey, shared his thoughts on the review, stating: “The review noted, as is often the case, that proof of fair value assessments had not been detailed in a manner that enabled the regulator to assess the efficacy of the product.
“Whilst insurers have this obligation to offer regularly reviewed fair-value products the onus for advisers is quite different.
“They have a menu of ‘fair-value’ products to choose from and make assessments and recommendations for their clients.”
However, Lakey cautioned that this is not as simple as it sounds because ‘value’ is a “nebulous concept” determined by factors such as price, product quality, underwriting, administrative capability and other variable matters.
“With critical illness, is the cheapest the best value or is the most comprehensive the best? Is offering a joint-life plan better value than two single life plans?” he asked.
He added the main problem is a lack of proof that these assessments have been carried out in such a way that the regulator can be comfortable that the appropriate oversight has been used.
“For insurers it also poses the question of whether loaded premiums negatively impact the value aspect.”
Meanwhile, Protection Review managing director, Roger Edwards, said the guidance shows that, while a great deal of work has been done in the industry, “we still have a fair way to go yet”.
