The Financial Conduct Authority (FCA) has published the letters it sent to personal and commercial lines insurance intermediaries (P&CLII) and Lloyd’s and London Market insurance intermediaries (and managing general agents) (LLMI) in which the regulator outlined what it believes are the key risks within the respective portfolios.
“The key areas of harm identified for LLMI firms are product suitability and price transparency; uncertainty of insurance cover; culture; and resilience,” wrote the FCA. “The wholesale insurance market has made some progress towards delivering good outcomes for customers, for example in relation to how they considered the expectations set out in the guidance in our pandemic-related work. We also recognise the industry’s commitment and the actions by some, to date, on driving change and reducing the impact of climate change.
“However, our view in terms of the treatment of customers, is that firms in the portfolio have not fully embraced our key messages (for example around product oversight or firm culture and purpose) or kept up with the pace of regulatory change. We are also disappointed on the progress made on diversity and inclusion, where firms still require substantial changes, both as employers and in serving the diverse needs of customers.”
The LLMI portfolio spans traditional London Market brokers, MGAs, service companies, consolidators, and Lloyd’s member agents. According to the watchdog, its aim in supervising LLMI firms is to enable the provision of a wholesale market that works well for both participants and customers and preserves the market’s integrity.
P&CLII, meanwhile, relates to general insurance intermediaries that serve retail and/or commercial customers; loss assessors; as well as companies for which broking of insurance products is ancillary to their primary business.
The FCA stated: “Our view of the general insurance intermediary sector overall is that there are significant risks of potential harm that both the market and individual firms need to address. We want to see a market where customers are appropriately supported both in purchasing the right insurance products for their needs, and when they need to claim. We want to see products sold that offer fair value to consumers, and for there to be strong systems and controls within firms.
“We continue to believe that the most significant risk of harm in the portfolio is through customers buying unsuitable or poor-value products. We frequently see examples of harm caused by mis-selling, where firms lack customer-centric cultures and where consumer outcomes have not been appropriately considered. We also continue to observe ineffective governance and control arrangements.”
As a next step, the regulator said it will continue to engage with P&CLII and LLMI firms over the next two years through the FCA’s planned programme of work. FCA insurance and conduct specialists director Matt Brewis noted that they will be writing again to P&CLII and LLMI organisations in 2023 and 2024, respectively, to provide the watchdog’s updated view.
