Managing conflicts of interest in insurance

Having just joined as the FCA’s new insurance director, it’s been great getting to know the team and see the variety of work they’re doing – whether that’s working with the industry to improve claims experiences for customers, consulting on simplifying our rules or supporting growth with a new regime for captive insurers.

One item that has crossed my desk is vertically integrated business models, which we’re publishing information for firms[2] on today.

When a consumer buys insurance, they need to trust that the firm they're dealing with is genuinely working toward the best outcome for them – and that they’re not losing out due to conflicts of interest.

This can happen when a single group of companies span multiple parts of the insurance chain: underwriting the policy, distributing it to customers, arranging premium finance, and providing other related services.

It can also happen when firms are connected through ownership or financing relationships that may be publicly disclosed or private in nature. These arrangements can make good and efficient business sense. But they can also create conflicts of interest – particularly if they influence consumer journeys or potentially alter commercial incentives. This has the potential to shape decisions in ways that don't serve the customer.

This isn't just a theoretical concern. We've taken enforcement action[3] before against firms where conflicts of interest weren't properly managed, and where ownership or remuneration arrangements influenced customer outcomes.

What firms should do

Having a conflict of interest doesn't automatically make a business model unacceptable. But you need to take these risks seriously.

You must actively identify, manage and evidence those conflicts. That means effective governance, clear senior management accountability and controls that actually work in practice, not just on paper.

Crucially, disclosure alone is not enough. Simply telling customers about a conflict doesn't remove your obligation to manage it properly.

You should look at how you design products and panels, how you communicate with customers, how you structure remuneration, and whether your customer-facing information is genuinely transparent about commercial relationships that could affect a customer's decision.

Wherever a firm happens to be in the chain it needs to assess and be able to evidence the value added in each link.

If you're considering new ownership, investment or financing structures that could add complexity or create new conflicts, you should factor our expectations into that assessment from the start. 

What we’re doing  

We've written directly to some firms where we think their business models may be creating heightened risks of conflicts of interest.

But we're also making our expectations clear[2] to the whole market – because this isn't an issue isolated to a handful of instances.

We are monitoring developments in this area, so you may receive ad hoc data requests. You should be able to show us how your arrangements deliver good outcomes for customers. Where business models are overly complex or difficult to supervise, we expect you to think seriously about simplifying them.

Any material changes to your business model that affect conflicts of interest should be notified to us promptly.

Our position is clear: Where we see firms acting in ways that could harm consumers, obscure accountability or undermine trust, we will act, starting with supervisory engagement, and with enforcement if needed.

Getting this right will help give customers that extra peace of mind that insurance products are working for them.