Under the microscope: General Insurance and pure protection governance.

On 21^st August 2024, the FCA published TR24/2: General insurance and pure protection product governance thematic review. The review supersedes the FCA’s letter from February 2024, which commented on its key observations only, and acts as the regulators final report for this review of the sector.

The FCA carried out this review of insurance manufacturers and distributors’ product oversight and governance arrangements, because it wanted to evaluate whether firms were adhering to their responsibilities under the FCA’s Product Governance Sourcebook (PROD 4). Those responsibilities include ensuring customers consistently get fair value and good outcomes from their products and services as well as ensuring they do not cause any harm to their customers.

The review

Under the review, the FCA analysed information from 28 manufacturers and 39 distributors, covering 10 different general insurance and pure protection products. The review focused on how firms have:

• assessed and can demonstrate their products and services offer fair value;
• effective product governance arrangements to meet the requirements under PROD 4; and
• taken effective action where products may not be providing the intended value

What did the review find?

The FCA were disappointed to see many insurance firms are not fully meeting their product governance obligations.

The review found that many manufacturers are not adequately assessing and evidencing that their products/services deliver fair value and good outcomes. This means firms are not identifying any instances where their products are not delivering fair value for customers and subsequently not rectifying this, leading to an increased risk of harm to customers.

Findings also suggested that most distributors do not fully understand their responsibilities to consider their remuneration, its interaction with the services and benefits they provide, and its impact on the product’s value.

This is not good news: the FCA expects firms to meet their product governance obligations and ensure their products/services do offer fair value, and, importantly, that this is all evidenced.

These failings can lead to consumer harm through uncompetitively priced products both at inception and subsequent renewals. The FCA has highlighted this in the latest Value Measures publication and through the intervention on GAP insurance.

On the 28^th August 2024 the FCA announced their intention to complete a further market study of the pure protection market. The FCA will focus the study on the sale of four specific types of products:

• term assurance,
• critical illness cover,
• income protection insurance, and,
• whole of life insurance including policies for over 50s that offer guaranteed acceptance.

Next steps?

The FCA states that all manufacturers and distributors of general insurance and pure protection products should analyse this thematic review and assess whether, and to what extent, these issues apply to their firm’s activities. If shortcomings are identified, firms should resolve them and if customers have been harmed, firms are expected to offer redress.

Chapters 4 and 5 of the report give examples of good and bad practice identified, which can assist firms in this process. Our advice is to act sooner rather than later in reviewing your product governance arrangements in relation to all steps of the customer life cycle.

The FCA are also considering the most appropriate supervisory and regulatory actions to be taken to address the issues found as soon as possible. Where failings cause significant harm to customers, the FCA will ensure that firms and senior managers are held accountable and responsible for actions to remediate the harm.