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FCA WARNS INSURANCE FIRMS OVER APPROACHING DEADLINE

by Mia Wallace 25 Aug 2021
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FCA WARNS INSURANCE FIRMS OVER APPROACHING DEADLINE | INSURANCE BUSINESS

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:

 * Insufficient focus on customers, outcomes and product value, including when
   considering value in the context of COVID-19
 * Shortcomings in governance and oversight of products

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).

RELATED STORIES:

 * FCA and Consumer Intelligence reveal the meaning of fair value
 * Industry reacts to FCA's general insurance pricing reform update

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