The Financial Conduct Authority (FCA) has told Lloyd’s of London and its insurance intermediaries to do their part in educating policyholders about the effects of a hardening market.
In a letter released Tuesday, the watchdog said it is aware that the insurance sector is entering a hardening market due to a range of factors, including low interest rates, a series of natural calamities, a surge of business from the US, and the COVID-19 crisis.
“The intermediated market will need to (re)acquire the skills to explain and educate clients about why their premium is rising, while cover may reduce,” Charlotte Cross, FCA’s head of wholesale general insurance, wrote in the letter. “We understand some intermediaries have been active in addressing this issue, but we remind firms that inadequate insurance coverage is a potential outcome of a hardening market and poses harm for customers.”
For policyholders, a hardening market means higher premiums as some insurance providers pull out of certain lines of business, resulting in limited supply and tighter terms and conditions.
“Firms will need to ensure they are meeting their obligations under our rules (when providing cover). This includes requirements on assessing customer demands and needs, product oversight and governance, acting honestly, fairly and professionally in the customer’s best interest and providing appropriate product information to address the risk of customer harm that may arise from a hardening market,” the letter said.
