UK insurance firms must ensure fair value of products following FCA review

Matt Saward, financial services specialist at Pinsent Masons, said: “The report builds on the FCA’s long-standing focus on value, including its recent FCA strengthening of rules on products governance to ensure products offer fair value and customers are getting good outcomes."

In the review, the FCA analysed information from 28 manufacturers and 39 distributors covering 10 different non-investment insurance products. The FCA looked at whether firms had assessed and could demonstrate that their products and services offer fair value, whether their product governance and arrangements met the requirements under the latest product intervention and product governance sourcebook (PROD 4) and whether firms had taken effective action where products were potentially not providing the intended value.

According to the subsequent report (43 pages / 528 KB), many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good customer outcomes. The report also highlighted that most distributors do not fully understand their responsibilities to consider their remuneration, its interaction with the services and benefits they provide, and its impact on product value.

“Ultimately, these types of failings can lead to consumer harm,” said Saward. “Therefore, firms are being urged to consider the contents of the report urgently, assessing whether and to what extent these identified issues apply to their activities.”

The FCA expects firms to move quickly to remediate any issues identified, including redress to customers who have suffered any harm due to related shortcomings.

Examples of poor practices are set out in the report, including failure to consider customer risk properly and a lack of proper consumer income assessment. In some cases, distributors were found to have received only limited information from manufacturers, as well as other firms simplifying the information presented to product governance forms, limiting the ability for challenge. 

The FCA is also calling on insurers and brokers to ensure they demonstrate fair value and good customer services outcomes.

In a recent release, the FCA said that while insurer and brokers have improved governance and oversight of how products are designed, managed, reviewed, and distributed, many still cannot show how they are providing fair value to customers or that they were receiving good outcomes.

The FCA noted that the issues stem from a lack of information sharing between insurances and brokers, and in identifying target markets.

“We’ve seen the FCA recently intervene regarding value concerns in respect of GAP insurance and this release acts as a reminder that if insurers and brokers cannot demonstrate that their products meet FCA rules and provide fair value, the FCA will take appropriate regulatory action.” said Saward.