FCA says firms not treating delegated authority arrangements as outsourcing in the general insurance market

The Financial Conduct Authority (FCA) has published the results of its thematic review of delegated authority arrangements in the general insurance market.

Delegated authority is widely used in the UK general insurance market. This can include outsourcing of underwriting and claims handling and the allocation of other functions such as product design to third parties. 

The review highlighted that some firms do not treat these arrangements as outsourcing and improvements are needed to due diligence and the way they manage outsourced arrangements, particularly in considering and assessing customer outcomes.

The FCA reviewed 12 insurers’ outsourced underwriting and claims handling arrangements and the associated activities of 19 intermediaries and third party administrators.

Linda Woodall, acting director of supervision at the FCA, said:

“All firms must ensure they have appropriate oversight of outsourced arrangements and meet their wider responsibilities to deliver fair customer outcomes. 

“We expect firms to consider the findings of the report and make any necessary changes to ensure that customers are treated fairly and not at risk of detriment.”

The review revealed that in many cases insurers and intermediaries did not appear to have adequately considered their regulatory obligations in relation to both outsourcing and other functions.  

The thematic review also revealed:

Some insurers did not carry out any conduct-focussed due diligence when selecting third parties

  • Some insurers had not considered whether the products they underwrite treat customers fairly; both in terms of the value and service delivered
  • Some intermediaries undertaking product design activities did not recognise the extent of their responsibilities as product providers
  • Insufficient oversight of the performance of products and delivery of services.

The FCA will be discussing its findings with the industry and relevant trade bodies and will follow up with individual firms to address specific issues identified as part of the review.

Notes to editors

  1. Thematic Review: TR15/7: Delegated authority: Outsourcing in the general insurance market
  2. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA). On 1 April 2014, the FCA took over responsibility for consumer credit regulation.
  3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  4. Find out more information about the FCA.