The Financial Conduct Authority (FCA) said it was “disappointed” to see “many insurance firms were not fully meeting their product governance obligations” in a review published today.
The regulator issued its General insurance and pure protection product governance thematic review, which highlighted a number of issues in the distribution and governance of insurance products.
The review came after the FCA found some products that did not offer fair value, meaning a risk of causing harm to customers.
Some 28 insurance manufacturers and 39 distributors were analysed across 10 general insurance and pure protection products.
The regulator said many distributors, including advisers and brokers, did not “fully understand their responsibilities to consider their remuneration, its interaction with the services and benefits they provide, and its impact on the product’s value”.
Insurance providers were also found to not be “adequately assessing and evidencing that their products deliver fair value and good outcomes”.
Insurance distributors making ‘little progress’
The FCA said some distributors had made “little progress” in understanding their responsibilities when reviewing policies under product oversight and governance (PROD) 4.3, and “considering the impact of their activities and remuneration”.
It said many product distribution arrangements were “too high-level”, did not have enough detail and had a lack of clarity around who was responsible for decisions or how to deal with the escalation of problems.
Firms were also not adequately assessing the impact of their activities on the products’ intended value or whether it delivered the intended value to the target market.
The FCA added: “While some distributors had provisions in place for at least an annual review of products, they were often missing details on the triggers to identify the need for more regular review.”
Distributors were also failing to get necessary information from manufacturers to meet their obligations under PROD 4.3, the regulator said.
As for the impact of product distribution arrangements and remuneration, the FCA found some distributors had “limited information” from providers on the fair value outcome, while other manufacturers simply said a product offered fair value with no information to prove this.
It said: “From the information provided to distributors, we could not see how they would be able to understand the intended value of the product.”
It found fewer than five manufacturers in its sample gave adequate information about the impact of the distribution arrangements on the product’s overall value.
Just a few distributors gave sufficient evidence that they had properly assessed whether the remuneration was consistent with a product providing fair value, the FCA found.
It added: “This included assessing the interaction between the price paid by the customer, the extent and quality of the distributor’s services and whether any remuneration would mean the product ceased to provide fair value.
“There was often no breakdown of the total remuneration, creating a lack of clarity of the impact of the different components, such as commissions and fees, on the total price the customer pays and the product’s overall value.”
The regulator also identified instances where the target market statement from an insurance provider differed from the adviser’s statement, despite being for the same product.
The FCA said it expected distributors to introduce measures ensuring they:
- Are acting consistently with the distribution strategy and only distribute the product to customers in the identified target market.
- Appropriately assess the impact of their activities and remuneration on the distribution strategy and product value.
- Identify distribution or value problems that present a risk of harm to customers and act promptly to address these.
Shekina is the deputy editor at Mortgage Solutions and commercial editor at Mortgage Solutions and Specialist Lending Solutions. She has nearly eight years of experience in the B2B publishing market, having previously covered the hospitality, retail, pet, accounting and jewellery sectors.
Shekina has worked for Mortgage Solutions and Specialist Lending Solutions for almost five years. Here, she covers the market’s breaking news stories, engages with professionals in the sector, and oversees any commercially agreed content in partnership with mortgage-related companies.
This includes presenting webinars and hosting roundtable discussions on developing themes in the mortgage sector.
She is an NCTJ-trained journalist and was nominated for the Headline Money Awards Mortgage Journalist of the Year in 2021.
In her spare time, Shekina likes to read, travel, listen to music and socialise with friends.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS
