The FCA has written to the Boards of personal and commercial line (PL&CL) insurers to give an updated overview of what the FCA considers are the key risks of harm PL&CL insurers pose to their customers and the markets in which they operate, to outline the FCA’s expectations of insurers and provide an overview of the FCA’s supervisory strategy for the next two years. The letter was published in August 2021 although it is dated April 2021 and it updates the FCA’s view of the key risks of harm since its last letter to PL&CL insurers in January 2020 by taking into the account the impact of COVID-19.
The FCA has identified the following as ‘key drivers of harm’ and specified the following expectations in response:
Key drivers of harm
FCA expectations/FCA actions
Poor pricing practices pose significant risk of harm and poor outcomes for consumers.
The FCA expects firms to be working on implementation of the new rules set out in the policy statement on general insurance pricing practices. The rules on pricing, auto‑renewal and reporting will come into effect on 1 January 2022. The rules on systems and controls, retail premium finance rules and product governance will come into effect on 1 October 2021.
FCA actions: It will conduct a supervisory programme to monitor compliance with the new rules, regularly review pricing data and engage directly with firms who fall short of the new requirements.
Consumers purchase products which are not fair value
Firms are expected to review (and continue to monitor) how COVID-19 has affected the value of their products and take appropriate action.
FCA actions: The FCA will focus on monitoring firms’ oversight and governance of product manufacturing. It will intervene where it sees shortcomings or where it sees products which do not provide fair value to customers.
Consumers experience poor service due to ineffective oversight of the value chain
Although the FCA has previously set out its expectations in a Dear CEO letter and guidance, it has continued to see examples of ineffective oversight.
FCA actions: The FCA will be carrying out a review to assess the steps taken by firms to improve the oversight, governance and control of the distribution chain and intervene if necessary.
Business interruption claims payments are not made in a timely manner and in line with the BI insurance test case judgment
Firms are expected to pay valid BI claims as soon as possible.
FCA actions: Through reviewing data submitted by affected insurers, the FCA will continue to monitor the progress of the payment of claims.
Firms’ operational resilience does not prevent the loss or misuse of consumer data or results in consumers not having access to key services
Firms are expected to have robust systems and controls (including a business continuity plan) to be able to operate effectively in a stressed situation. Firms must have implemented the new requirements in the Operational Resilience Policy Statement by 31 March 2022.
FCA actions: the FCA will monitor firms’ implementation plans and FCA specialists, such as the Cyber Coordination Group, will assess firms’ ability to deal with cyber-attacks.
The FCA will review and provide a further update in 2023. In addition, although not mentioned in this recent letter, firms will also need to take into consideration other FCA regulatory requirements set out in the guidance on the fair treatment of vulnerable customers and in the new Consumer Duty proposals (currently under consultation). For more details about the Consumer Duty proposals see our series of articles on Engage.
Authored by Kirsten Barber.
Consumer Duty series – a roundup on the key issues for firms
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