Insurers already struggle to demonstrate their products offer fair value, so why should advisers have to repeat this work?
This is the question posed by compliance consultant, Branko Bjelobaba (pictured), who spoke to Health & Protection in the wake of the British Insurance Brokers’ Association (BIBA) call for reform of the Financial Conduct Authority’s (FCA) product value/fair value assessment regime.
In their manifesto BIBA described the way firms are interpreting the current product value and fair value assessment requirements that apply to insurers and intermediaries involves as “unnecessary” duplication, adding it is resource heavy and embodies an ‘unintended’ burden on its members.
While Bjelobaba told Health & Protection brokers should only be asked to look at their part of the fair value equation, advisers themselves argue the current process is “excessive” and there remains disparities between brokers and providers in terms of defining fair value.
Utter madness
“We have had fair value rules since October 2021,” Bjelobaba tells Health & Protection.
“It appears that a lot of insurers struggle to articulate whether the product that the customer is buying, does indeed provide fair value – i.e. is it worth what they are paying for it?
“This means does the cover and benefits add up and is their evidence that the product works?
“So, if all insurers have to articulate this then why should every broker have to do the same and how can a broker determine whether the insurer has evidenced fair value?
“Of course they can’t, so why are they being asked to for every product that they sell?”
Bjelobaba described the current situation as “utter madness”.
“A broker should only be asked to look at their part of the fair value equation,” he continued.
“It’s the bit that they are responsible for, i.e. work out whether the commission they get is fair for the services that they provide and what extra is being provided by any fees or charges on top. That’s it.
“There is no need to repeat what the manufacturer of the product tells you (bit like food labelling which is not influenced by the retailer).
“The advice process takes on board understanding what the client wants and then the broker does what they eventually get paid for – sources the right policy where the insurer provides industry agreed metrics.
“It’s not much to ask, so well done BIBA.”
Assessments are not the same
Andrew Wilkinson, director at Moneysworth, told Health & Protection he thought a key part of BIBA’s argument was based on the assumption that the results of distributor’s and provider’s self assessments are the same.
“If this were the case then Biba perhaps have a point,” Wilkinson said.
“But the reason the FCA wanted both distributors and providers to do fair value assessments was to place an onus on the whole distribution chain to focus on bad outcomes and getting rid of them, especially for vulnerable consumers.
“Generally, in terms of our target markets we have seen gaps in provider fair value assessments. Insurers tend to define their target markets in the broadest of terms rather than looking in any detail at those for whom their products are not suitable (because they are not made available).”
Fair value means different things
Wilkinson added fair value means different things to different groups of consumers and their advisers.
“For people living without health conditions and within the minimum and maximum ages, advisers may to be able to rely more on provider fair value assessments,” he said.
“But when advising clients outside those parameters, such as vulnerable consumers, provider fair value assessments generally have very limited value at all.
“I think the most important fair value assessment is the one done by the adviser when advising the client.
“A key early question advisers need to ask themselves is whether there are any features of the case which would indicate that it is unsafe to rely only on the provider assessment.
“The provider fair assessment may suggest the product should be available to a client of the same age, but is that actually the case? If the product is available is it at standard premiums and without exclusions?
“If not this it the trigger for the adviser to realise that they cannot rely on the insurer’s own fair value assessment to justify recommending that product and company, instead they will need to research available options costs and exclusions across the whole market.
“Because without doing so the adviser cannot be sure that the outcome achieved is the best one for the client in their own circumstances.”
Red herring
Consequently, Wilkinson said he thought that in reality the issue of duplication of ’fair value assessment’ is something of a red herring and a side issue.
“Most adviser firms would and should know that the provider’s fair value assessments are at best a starting point and they should be spending significantly more time doing their individual client fair assessments rather than using and relying on provider assessments,” he continued.
“Given BIBA’s role in providing the main signposting system for vulnerable consumers over the last few years might it be appropriate now to ask them some questions about how the service is operating?
“What kind of expectations do they have in terms of the client fair value assessments and recommendations that need to performed by panel distributors on the Find Insurance service?
“How does this match with their most recent proposals about fair value assessments?”
Disproportionate burden
While the assessments do not significantly affect Joanna Streames, managing director at Velvet Mortgage and Insure Services as her business is part of a network, the requirements still create a “disproportionate burden”.
“The fair value assessment requirements don’t significantly impact us as a firm because we are under a network, so much of the heavy lifting is handled centrally,” Streames said.
“However, the regime creates a disproportionate burden on directly authorised (DA) firms and can deter smaller businesses from pursuing direct authorisation altogether.
“For brokers outside a network, the duplication and sheer volume of assessments are resource-intensive, pulling them away from their core work of supporting clients.
“This stifles growth and innovation for DA firms and creates an uneven playing field in the industry and is the main reason most network firms stay with networks as well as the issues surrounding moving around in the industry as a business, but that’s for another day.
“More broadly, the sheer amount of administrative work across the industry is strangling advisers and reducing the time they can spend delivering real, meaningful help to clients.
“It’s a systemic issue that risks leaving more clients underserved and without the advice they need.
She said that while ensuring good client outcomes is vital, the current process is excessive.
“A streamlined approach, perhaps with more standardised assessments or greater collaboration between insurers and brokers, would alleviate the pressure and make it feasible for smaller DA firms to thrive.
“Reform is essential to enable a fairer, more balanced system that benefits both brokers and clients.”
Crazy design of returns
Alan Lakey, director at Highclere Financial Services and CIExpert, added he was sure BIBA was correct in their assessment of the situation.
“I am sure they are right,” Lakey said.
“I can only confirm that the RegData returns that advisers have to complete twice a year are a real burden in terms of time and effort and include unnecessary repetition.
“The design of the return is also crazy. When asking how many advisers work at the firm the answer has to be to two decimal points.”