The Financial Conduct Authority’s (FCA) incoming Consumer Duty rules are expected to land the industry with its largest compliance bill since the Retail Distribution Review (RDR) was applied, according to Association of Mortgage Intermediaries (AMI) chief executive Robert Sinclair.
Sinclair believes pricing models will have to change and providers will no longer be able to charge different amounts for different consumer channels – including through loaded premiums.
Sinclair told Health & Protection how significant the impact is likely to be for the industry.
“Everyone thinks the consumer duty is just compliance, but the FCA expects the charges will be £2bn – it’s the biggest bill in the industry since RDR,” he said.
“The expectation is the industry will have to do significant amendments to re-engineer how it deals with consumers.”
“All the people I know at major insurers are doing the work to look at this and how to deal with it – they are definitely and absolutely thinking about what the risks and issues are here.”
Loaded premiums ‘hard to justify’
Aviva managing director of protection Fran Bruce told Health & Protection in October that when combined with its Fair Value rules the regulator was bringing commission under sharper focus.
Sinclair agreed, noting that under these he believed lenders and distributors would have to have a conversation about justifying what they were doing.
“Under the Fair Value and Consumer Duty I don’t think providers will be able to justify having a different price for customers depending on the channel the customer comes through,” he said.
“How can an insurer charge four different prices depending on the channel?
“An interesting debate is do we have the ultimate cost of the risk or is there building cost of distribution across the pool?” he added.
Sinclair also warned those firms who were continuing to charge loaded premiums that they could come under the regulator’s scrutiny.
“Can you have higher premiums? If you haven’t gone through the through process and made a justification then will be in trouble in my view,” he said.