The Financial Conduct Authority (FCA) has enacted a series of rule changes for firms in insurance markets including removing minimum requirements for training and product reviews.
The regulator has also updated which rules will apply to commercial insurance customers and is seeking to more clearly define the SME watershed.
Many of the changes were proposed earlier this year as part of its simplifying of insurance rules process, with the final versions now published in PS25/21.
No minimum CPD requirements
Insurers, advisers, intermediaries and other firms in the insurance sector will no longer have to ensure their employees conduct at least 15 hours of continuing professional development (CPD) every year.
The regulator argued the proposal is not intended as a relaxation of the overall competence and training expectation in its rules.
“Investment in training and development improves standards that build trust in the sector among consumers and corporate buyers, thereby supporting growth,” it said.
“Employee competency has always been a basic expectation within the insurance industry and should not require a minimum threshold to be prescribed by the regulator.”
The FCA noted many individuals strongly defended the importance of a regulatory-required minimum baseline of CPD, whether separate from or in addition to professional requirements.
However, the regulator also received strong support from other firms, as certain roles already require significantly more hours of training.
“We are removing the compulsory 15-hour minimum as consulted, to allow firms greater flexibility to tailor training to specific roles and business requirements,” it continued.
“Firms will remain responsible for ensuring that their employees continue to maintain appropriate levels of knowledge and competence.”
End of annual product reviews
Insurers and other product manufacturers will no longer have to complete mandatory reviews of their products every year.
They will however, have to schedule regular product reviews depending on the appropriate timelines of potential for customer harm and maintain a record of this determination.
Broadly similar requirements are being introduced for distributors in relation to the review of the product distribution arrangements.
“We remind firms that product reviews are solely the manufacturer’s responsibility, while distributors must review their product distribution arrangements. So, the timescales of manufacturers and distributors can be different,“ the FCA said.
“We are adding guidance to clarify that, upon request, manufacturers are expected to share information on the appropriate intervals of the product review with distributors in the chain. We have added similar guidance in relation to the review of the distribution arrangements by distributors.
“Firms are responsible for reviewing and updating the review frequency when data suggests changes to the risk of potential customer harm posed by the product,” it added.
Applying rules for commercial insurance
The FCA noted there was broad support for its policy intent to continue appropriate protections for smaller commercial customers and aligning these with the Financial Ombudsman Service (FOS) while reducing the burden on firms dealing with larger commercial customers.
It is replacing the contracts of large risks with two definitions, specialist risk contracts and larger commercial customers, to help clearly define significant differences among those covered.
- Specialist risks contracts: in line with existing product-specific categories, these are contracts of insurance covering railway rolling stock, aircraft, ships, goods in transit, aircraft liability and liability of ships. They also include contracts of insurance covering credit and suretyship where the policyholder is engaged in certain specified activities.
- Larger commercial customers: these are commercial customers of any general insurance product who exceed the thresholds aligned with dispute resolution (DISP) rules, with the change highlighted above relating to the ‘policyholder making arrangements’ being reflected here as well.
“We have opted to split the large risks concept into two new definitions. Those produce the same result as we consulted on and are designed to further simplify how the large risks concept determines the extent to which our rules apply,” the FCA said.
“This gives a clearer divide between contracts which are excluded based on the nature of the risk they cover, and customers which are excluded based on the thresholds mentioned.”
The FCA is also changing rules on
- Allowing a lead firm to take responsibility for product design and approval.
- Broadening the scope of, and clarifying, the bespoke contracts exclusion.
- Removing notification and reporting requirements for employer’s liability insurance.
FCA director of competition and interim director of insurance Graeme Reynolds said: “We’re simplifying and removing rules for insurers and brokers, reducing regulatory costs and helping them focus on delivering better outcomes.
“Our focus on smarter regulation is not once and done, and by using the Consumer Duty we’ll continue to look at rules we may no longer need.
“We want firms to keep engaging with us on further simplifications for the insurance sector, so we can support growth and innovation.”
