The Financial Conduct Authority (FCA) has today warned that insurance firms may not be ready to implement the new product governance rules set out to ensure insurance provides fair value. A review recently carried out by the regulator examined how firms designed, sold and reviewed their products to ensure they met the needs of their customers.
The review found that some firms had made good progress in meeting the FCA’s existing rules and guidance on product governance and value, issued in 2018 and 2019, and its temporary guidance on product value, issued in response to COVID-19 last year. However, too many firms were not fully meeting the FCA’s standards, while many firms are likely to be unprepared to meet new enhanced rules on product governance, which come into force on October 01, 2021.
The review found weaknesses including:
The FCA cited the example that it is not always clear that firms have adequate processes in place to assess whether intermediary remuneration bears a reasonable relationship to the costs or workload to distribute the product as set out in previous guidance and required under the rules applicable from October.
Commenting on the review, Sheldon Mills, executive director for supervision, policy and competition at the FCA, highlighted that some firms are doing the right thing but noted that the deadline for implementing the FCA’s enhanced rules is now less than two months away.
“It’s worrying that some firms may not be ready,” he said. “Where firms are not consistently meeting existing requirements and expectations, it risks harm through poor value products or products being sold to the wrong customers. These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.”
The enhanced product governance rules were introduced following the FCA’s general insurance pricing practices market study which uncovered that home and motor insurance markets were not working well for consumers, particularly loyal customers. The rules have therefore been designed to ensure that firms have processes in place to deliver products that offer fair value to customers (including all non-investment insurance contracts, not only home and motor insurance).
