The Financial Conduct Authority (FCA) has found that many insurance firms could be unprepared to meet its new enhanced rules on product governance.
The new rules – which come into effect on 1 October 2021 – are designed to ensure that insurance firms have processes in place to deliver products that offer fair value to customers.
They are part of a wider package of remedies introduced by the FCA to tackle the loyalty penalty by ensuring renewal quotes are not more expensive than they would be for new customers.
However, as part of an ongoing review, the FCA found that “too many firms” are not fully meeting its standards, with an insufficient focus on customers, outcomes and product value, including when considering value in the context of COVID-19.
For example, it was not always clear firms had adequate processes in place to assess whether intermediary remuneration – such as how much a broker is paid – bears reasonable relationship to the costs or workload to distribute the product, as required under the new rules.
“Where firms are not consistently meeting existing requirements and expectations, it risks harm through poor value products or products being sold to the wrong customers”, said Sheldon Mills, executive director for supervision, policy and competition at the FCA.
“These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.”
The FCA’s enhanced product governance rules were introduced following its general insurance pricing practices market study, which found home and motor insurance markets were not working well for consumers, particularly loyal customers.
The rules are designed to ensure that firms have processes in place to deliver products that offer fair value to customers, including all non-investment insurance contracts, not only home and motor insurance.
Despite many firms being unprepared, the FCA's review found that some have made good progress in meeting existing rules and guidance on product governance and value, issued in 2018 and 2019, as well as against temporary guidance on product value, issued in response to COVID-19 last year.
Mills added: “We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready.”
Image credit: Wolfilser / Shutterstock
Author: Chris Seekings