"We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready."
Insurance firms may not be ready to implement new product governance rules to ensure insurance provides fair value, according to a review published today by the FCA.
The FCA’s enhanced product governance rules were introduced following its general insurance pricing practices market study which found home and motor insurance markets were not working well for consumers, particularly loyal customers. The rules are designed to ensure that all non‑investment insurance firms have processes in place to deliver products that offer fair value to customers.
As part of the FCA’s ongoing work to ensure consumers receive fair value, the review looked at how firms designed, sold and reviewed their products to ensure they met the needs of their customers.
The findings show 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, as well as against temporary guidance on product value, issued in response to Covid-19 last year.
However, the FCA says too many firms are not fully meeting its standards. In addition, many firms are likely to be unprepared to meet new enhanced rules on product governance, which come into force on 1st October 2021. These new rules are part of a wider package of remedies introduced by the FCA to tackle the loyalty penalty and ensure that firms focus on providing fair value to all their customers.
The review found weaknesses including shortcomings in governance and oversight of products and insufficient focus on customers, outcomes and product value, including when considering value in the context of Covid-19.
As an example, the FCA says it was not always clear that firms had adequate processes in place to assess whether intermediary remuneration (such as how much a broker is paid) "bears reasonable relationship to the costs or workload to distribute the product", as required under the new rules.
Sheldon Mills, executive director for supervision, policy and competition at the FCA, said: "We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready.
"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."