General Insurance Article - Insurers fail to consider value of products and services


The Financial Conduct Authority (FCA) is warning General Insurance (GI) firms about manufacturing, sales and distribution approaches that can lead to customers purchasing inappropriate products, paying excessive prices or receiving poor service.

 The recently implemented Insurance Distribution Directive requires that all firms in the GI distribution chain act in accordance with the best interests of the customer. The recently implemented Senior Manager and Certification Regime is designed to make Senior Managers accountable for the actions of their firms. The FCA is warning the industry that it will not hesitate to intervene with both firms and their senior managers on these bases where it sees a failure to have appropriate regard to the value their ultimate customers receive. 

 GI products are key to giving UK consumers and businesses the security and stability to go about their daily activities with confidence. It is therefore essential that they can access high quality, good value insurance products.

 Some GI distribution chains involve only one or two parties (e.g. a direct insurer or an insurer and an insurance broker) but others can include multiple parties. The report highlights how the remuneration of all the parties in the distribution chain can result in customers paying significantly higher prices than the production and delivery costs of the products they are buying. In some distribution chains, there can also be a high risk of unsuitable sales, for example, where the distributor is selling insurance alongside a non-financial product like a car, white goods or a holiday.

 The FCA has published two reports in recent years which highlighted failings in the governance and control of GI distribution chains, including over outsourced arrangements (in 2015 on Delegated Authority and in 2016 on Appointed Representatives). While some progress has been made since, today’s report outlines that significant potential for customer harm remains. The issues identified in the report indicate many firms lack sufficient focus on customer outcomes and need to address this urgently to mitigate the potential harm to customers.

 Jonathan Davidson, executive director of Supervision – Retail and Authorisations, at the FCA said:“Through our recent work we have continued to see poor manufacturing, sales and distribution approaches leading to sales of low value and inappropriate products, unfair treatment of claims and service issues. 

 “The widespread extent of these issues demonstrates a culture which pays insufficient regard to customer outcomes in some parts of the general insurance sector. We are going to carry out further supervisory work to make sure that firms meet their obligations and will not hesitate to use the full range of our regulatory powers.”

 The FCA expects all firms to review the findings and the expectations set out in the report and accompanying proposed guidance to identify any issues applicable to them, and to act immediately to address these. The FCA has also written to the CEOs of all authorised GI firms to share these findings and its expectations. 

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