The Financial Conduct Authority (FCA) has released a new report zeroing in on general insurance (GI) distribution chains as it warns companies about their potentially harmful approaches.
Part of the FCA’s ongoing work into customer value in GI, the document released this morning collates the findings from two separate assessments – one which delved into GI distribution chains and their impact on the value provided to consumers, and another aimed at evaluating the extent to which firms had responded to the regulator’s 2015 review of delegated authority arrangements.
“Our work identified significant potential for harm to customers arising from the product development and distribution approaches currently employed in some sectors of the GI market and by some GI firms,” noted the FCA in its report. “The risks of harm we identified included examples relating to both features of the distribution chain and of the particular product involved.
“We saw many cases where it was not clear that firms (both insurers and intermediaries, acting as manufacturers or distributors) had considered the impact of their actions (and inactions) on the value of the products provided and customer outcomes.”
The watchdog highlighted that while it found several examples of these issues, there were also many other GI distribution chains and offerings which appeared to be delivering good value insurance products and appropriate outcomes, with no evidence of the harms manifesting.
These harms, particularly to personal lines and SME (small- and medium-sized enterprises) customers, include purchasing products which deliver little benefit or are less appropriate, as well as paying substantially more for something which brings no additional advantage compared to less expensive alternatives.
“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,” commented the FCA’s Jonathan Davidson, executive director of supervision – retail and authorisations.
“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 regulator has made the report available on its website, and expects all GI insurers and intermediaries to review it and the accompanying proposed guidance in order to immediately address any issues applicable to them. It has also written to the chief executives of all authorised GI firms.
According to the FCA, there are currently more than 300 insurers and 5,000 intermediaries operating in the UK GI marketplace.