Articles - How the FCA is helping insurers focus on what matters most

Insurers will admit that they have been going through something of an existential crisis for a number of years now, the value offered to clients and the quality of their products and services continues to be heavily scrutinised. It is common to hear warnings of powerful disruption doing to insurers what the internet did to newspapers. I feel that the FCA, in insisting on a customer centric view, is actually doing insurers a favour.

 By Kareline Daguer, Director PwC

 It is easy to lose sight of why you are here when you become a large player, and this is true of many insurers. It can be argued that the way existing customers are treated (evidenced in the heritage reviews of life insurers) too often leans towards complacency and a short sighted view of customers as revenue streams.

 It’s now been a number of weeks since the FCA’s publication of its business plan. The areas singled out for focus in the insurance space by the FCA are fundamental to the success of any insurance business in the long run. They include: making sure the products offered are relevant and appropriate for customers throughout their life cycle, considering the value added by distribution chains, ensuring that products are offered to the right customers for the right reasons and treating existing customers as you would treat new ones. Designing and selling relevant and beneficial insurance products to customers is the only way for any insurer to maintain and improve its position in the market.

 The FCA is conscious of its limitations to improve customer outcomes but also seems eager to go further than before. The planned work on insurers’ pricing practices is an example of the regulator going beyond its usual remit to understand how pricing works in practice. This might lead to the conclusion that consumer detriment could originate in the underwriting of the product itself. This work stream is only in its discovery phase, which means that the FCA is in learning mode. If the FCA decides to regulate pricing practices at some point it will be a significant step for a conduct regulator to take. Such a move would definitely require more coordination with the PRA. Pricing rules/ remedies would become of great interest to those involved in the pricing of insurance products such as actuaries, so this is a space to watch carefully over the next two years. This is also an area interlinked with the increase in the use of technology and AI since more factors could be identified as relevant to feed into pricing models.

 The technology challenge and how robotics, AI and big data can be leveraged to offer the best products is a fantastic opportunity for those willing to take up the challenge. In PwC’s latest Global CEO Survey we found 73% of insurance CEOs have changed their people strategy to reflect the skills and employment structures needed for the future, well above the response rate for other financial services sectors. This is driven by a need to be more innovative and make the most of the technological changes ahead with 61% of insurance industry leaders exploring hybrid technology (human and machines working together). I believe the FCA’s agenda goes hand in hand with the technology opportunity and both should be considered together to maximise the chances of success of any given product in the market. Building and maintaining the trust of customers is a long game, but then insurance is a long business and those that look far enough ahead are more likely to build the foundations for a healthy future.

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