The Financial Conduct Authority (FCA) has been particularly active in the general insurance sector since the beginning of the year, and we can expect this level of scrutiny to continue in the foreseeable future. Some significant initiatives will crystallise in the next few months, and we provide a checklist for general insurers and intermediaries of what expect and how to be best prepared.
These various initiatives have the potential to challenge the business model of insurers and intermediaries, in addition to the ongoing digital disruption many firms are facing.
We believe that options are available to firms to improve the sustainability of their business models. By proactively addressing these challenges, firms will be seen as really putting the customer at the heart of what they do.
The key action we advocate is to revamp the product oversight and governance processes that most insurers and intermediaries used. These processes should be extended to cover the end-to-end customer journeys with a laser focus on the quality of outcomes. Recent developments in digital capabilities represent a real opportunity to take a fresh view of what has been in place.
The following diagram is a summary of such an end-to-end approach:
General Insurance – Checklist
1. Value Measures
The value measures initiative has been piloted for almost three years and it is going to become a reality for insurers and intermediaries in the next few months.
The consultation is currently in progress and the policy statement is expected in October 2019.
This is a critical initiative to define the value of a general insurance product allowing customers and market participants to compare and benchmark products at a granular level across the industry. In addition, the intent is to integrate “value measures” as key element of the product governance process.
We strongly recommend that firms anticipate these changes and integrate “value measures” into their conduct risk programme – with some decisions required on their product suite before the formal publication of the value measures for the first time.
2. Pricing Practices
This might be the most complex and highest priority issue for general insurance firms at the moment.
It is important to consider the FCA intervention in this area within the broader context of the political and regulatory agenda, “Loyalty Penalty” pushed by the Competition Market Authority (CMA), and supported by the Parliament and the Government.
The interim result of the market study on pricing practices has been delayed, and it is now expected in October 2019.
In anticipation of this, the market has been busy ensuring that the ABI/BIBA guiding principles and the recommendations from the FCA thematic review are implemented.
In addition to these tactical steps, we believe firms need to develop a strategic decision framework on pricing practices that is able to combine and balance a targeted “return on equity” and “value for money” requirements.
Due to the potential far reaching implications of this review, we also recommend that firms stress test various scenarios and measure the potential impact to their business model and their prudential positions.
3. Distribution Chain – Roles & Responsibilities
On the back of the thematic review of general insurance distribution, the FCA has initiated a clear call for actions – but also proposed some new guidance to clarify the role and responsibilities of the manufacturers and distributors of GI products.
The consultation on this new guidance is currently in progress, and the feedback statement is due to be published this autumn 2019.
This guidance is an essential element to be integrated into a revamped product oversight and governance process that we are advocating.
4. Sales Practices – Demands and Needs
The FCA has been quite vocal in this area, arguing that the spirit and the letter of the changes introduced by the Insurance Distribution Directive (IDD) are not yet effective, and calling for improvement either directly to firms or through trade bodies and industry roundtables.
This is an area where it is more difficult to anticipate the next move from the FCA, but we can clearly expect some activity in the next few months (either through guidance, calls for actions or follow-up thematic), as we have witnessed a lot of changes in digital customer journeys in recent months.
In our opinion, there is a need for firms to ensure that the cultural shift introduced by the “demands and needs” requirement has been properly implemented across their various channels.FCA website - click here
Get in touch if you would like to have a conversation and explore how we can help to improve the resilience of your business model: firstname.lastname@example.org