Who should read this
Our findings and expectations are relevant to all firms in the general insurance (GI) sector. GI insurers and intermediaries need to consider the extent to which the issues identified and the harms they can give rise to – such as customers buying unsuitable products, paying excessive prices or not receiving services – are applicable to them. Our proposed non-handbook guidance and expectations are particularly relevant to insurers and intermediaries that manufacture GI products or services, given the new obligations arising from our implementation of the IDD. Consumer groups may also find the report of interest.
What was our scope
This report is the culmination of two simultaneous but separate reviews.
The first of these focused on value in the GI distribution chain, and considered how value is affected by different distribution chains, and the oversight and remuneration arrangements in place. We looked at firms involved in the distribution of either travel, tradesman or Guaranteed Asset Protection (GAP)/motor ancillary insurance – but our findings and expectations are relevant to all GI products.
Our second review assessed whether firms that outsource activities to other parties under delegated authority arrangements have responded appropriately to the findings of our 2015 thematic review. Our work considered whether firms had implemented effective risk management and control frameworks to mitigate the risks highlighted by our 2015 review.
What we found
We saw examples of possible harm to customers including:
- Customers paying potentially excessive prices due to parties in the chain receiving remuneration which appeared to significantly exceed the costs incurred in distributing the products. This was most prevalent where insurance was linked to another non-financial purchase, such as a car or a holiday.
- Customers buying potentially unsuitable products, due to issues with either the distribution or sales approaches in place.
- Customers not receiving the services they needed and experiencing poor outcomes, for example when making claims or complaints. This was most common where firms delegated authority to another party.
We identified two primary causes of these potential harms:
- Firms having a purpose and culture with insufficient focus on customers, particularly in relation to value and customer outcomes.
- Poor governance and oversight of product design, manufacture and distribution processes and practices – both over firms’ own business activities and where these were undertaken by other parties in the distribution chain.
Our expectations of firms
We are consulting on our proposed non-Handbook guidance and have set out our expectations in this report. All GI firms should consider our report, guidance and expectations carefully to identify how our findings apply to them, and take appropriate action immediately to mitigate any issues identified. In particular, all firms must comply with the rules implementing the Insurance Distribution Directive, including the requirement to act fairly, honestly and professionally in accordance with the best interests of the customer. All firms must also consider the value the customer receives from the firm’s products and services, and have appropriate systems and controls to manage their activities and mitigate any risks posed to customers.
Subject to the consultation process we have launched we will formalise our expectations as non-Handbook guidance.
We have also written to the CEOs of every authorised GI firm to highlight our findings and expectations, calling on firms to act immediately to identify and mitigate any shortcomings. This message will be reinforced through engagement with the industry, both directly with firms and via trade bodies.
Going forwards, we will undertake coordinated supervisory work in this area. If we identify any harm or potential harm from firms not meeting their obligations, we will not hesitate to use our full range of regulatory tools to intervene.