The Financial Conduct Authority (FCA) is sending data requests and detailed questionnaires to insurers in the protection insurance sector as part of its market study.
The requests are asking for data from the years 2021 to 2024 and include a deep focus around business models and the fair value of distributor commission, according to a compliance consultant who has also urged firms to begin modelling the impact of potential remedies now.
FCA director of insurance Matt Brewis confirmed the regulator was beginning this part of its information gathering process.
“We’ve asked anyone who works in protection products with a senior information request coming in around that,” he told the audience at the Association of British Insurers’ (ABI) A changing regulatory landscape event.
Also speaking at the event, Sicsic Advisory partner and consumer duty lead Nadege Genetay explained further details about the forms, including the scale of data being requested.
Commercial relations with distributors
Comparing the protection market study with the premium finance market study which is slightly further along, Genetay noted the requests had been “framed quite differently”, with the protection one framed almost as a voluntary request.
“My advice to any of you would be don’t take it as voluntary, but there’s still a different framing and it illustrates the difference between the two [market studies],” she said.
Genetay highlighted the protection data requests were for 2021 to 2024 which was “still a lot of data” and that upfront the FCA “is asking a lot more questions about business model”.
This was typified by the connection between fair value assessments being requested and commercial relationships with distributors, as Genetay suggested the FCA would be more overt in this area than normal.
She noted that for considering fair value there was potentially an advantage that this was a market study.
“A lot of the fair value assessment is really calling into question your commercial relationship with the distribution chain and there’s real difficulties for firms to be the first mover,” Genetay said.
“So what if you think that actually your remuneration of the distribution chain doesn’t stack up. Do you move first?
“Or if you are a distributor are you going to? What interaction will you have with insurers to say ‘you pay me less’?
“It’s not exactly an easy thing to do, so the FCA will have to consider market dynamics as part of this analysis.
“They always do in policy intervention, but this will be more overt and that might be helpful, but within the context of the new strategy.”
Start modelling the impact
Giving more details for protection insurers and some recommendations for how they should proceed, Genetay continued: “For those of you who are recipients of the pure protection information request you’ve got quite a bit of work before you get to the end of July.
“You should really gear yourself up to it because it is definitely a very big exercise.
“Review the information from your fair value assessments. How does it line up to the information that’s been requested by the FCA?
“You won’t change them, but it’s good if you understand for yourselves if something doesn’t quite stack-up.
“Importantly, you need to start thinking about modelling the impact of being ready to respond to whatever is going to come out of the studies,” she added.
Genetay added that while it was not possible to say what remedies were going to be applied, out of 14 market studies conducted by the FCA, only one did not have any changes implemented.
“So you should probably assume that is not the most likely outcome,” she continued.
She noted that interventions could range from talking to the industry about certain solutions to being “very big, transformational price commission remedies or product specific interventions”.
There could also be interventions around fair value or mandating IT information or other competition issues, she added.
And there is even the potential for referral to the Competition and Markets Authority (CMA) if necessary.