The Financial Conduct Authority (FCA) has written to the chief executives and directors of health and protection insurers and intermediaries conveying its expectations around implementation of the Consumer Duty and warning it does not want to see a repeat of issues in the general insurance (GI) market.
As part of this it is targeting how insurers are preparing for sharing information with distributors in April, and arrangements where they work with outsourced service providers (OSPs).
The regulator is also arranging a series of regional in-person events for specific groups of small and medium-sized firms.
Life insurance including pure protection
In its letter to life insurer bosses, which also specifies those in the pure protection market, the FCA said it was reminding life insurers that “they cannot contract out of their regulatory obligations and we expect firms to demonstrate robust oversight over any OSP arrangements”.
“It is essential that firms engage early and proactively with their material OSPs to ensure compliance with the duty by the dates set out in the timeline,” it added.
The FCA warned about insurers being prepared to share data with distributors operating in the sector and that it did not want to see delays repeated from the GI market.
“In the GI market, we saw significant issues in delays relating to manufacturers providing information to distributors and we do not expect to see this happen in the life insurance sector,” it said.
“Life insurance firms as manufacturers should be having an early dialogue with their distributors to ensure they are confident they will meet the April 2023 deadline.
“Under the duty we expect manufacturers to identify poor customer outcomes that may be occurring within their product’s distribution chain and, where they can influence the outcome, take appropriate steps to mitigate that risk of harm.”
The regulator said its three key areas of focus for the sector in the short to medium term are:
- Priority and targeted engagement with life insurers using OSPs to a material extent for their customer servicing operations, as well as the FCA-regulated outsourced service providers themselves, to understand how they have fully assured themselves that their businesses will achieve July 2023 compliance.
- Engagement with life insurers about their preparedness as manufacturers for the April 2023 milestone for information sharing with distributors. Essential to this, it added, was that manufacturers will need to have completed all reviews necessary to meet outcome rules for existing open products and that firms should be able to evidence this.
- Priority and targeted engagement with firms that have material closed books about their planning for July 2024 compliance, particularly those using outsourced service providers, but not limited to this. The regulator warned firms should not underestimate the scale of work involved and will need to demonstrate how they are approaching their product portfolios or universe and prioritising the reviews that will be required. Linked to this, the regulator added it will also want to understand whether firms plan any more complex solutions such as product simplification or migration.
The regulator noted that it may choose to refine its supervisory work as it learns more from its engagement with life insurers and outsourced service providers regarding the duty.
General insurance and pure protection
In its letter to bosses in the general insurance and pure protection sectors, the regulator said it was developing a strategy to embed the duty in its supervision work and tackle key harms, as well as metrics to measure the impact of the duty in these sectors.
It added the areas of effectiveness of product governance arrangements, effectiveness of communication with consumers, and claims processes and outcomes are likely to be the primary focus of its future supervisory work.
The regulator further told bosses that it may ask for evidence of how they have made the necessary changes to their business in light of the duty and the letter.
It also warned that leaders should expect to see the regulator acting much faster and more assertively where it finds firms not meeting the requirements of the duty.
Sheldon Mills, executive director of consumers and competition at the FCA, (pictured) said: “We want to thank firms for the hard work they’re putting into embedding the duty.
“We were encouraged to see many examples of good practice in our review of implementation plans and found that many firms are embracing the shift that the Consumer Duty brings.
“Putting good outcomes for customers at the heart of firms’ strategies and business objectives will build trust and modernise how we regulate financial services.
“Leaders have a key role to play here. We have a world-leading financial services industry which serves its customers, colleagues and shareholders well through competition, innovation and leveraging talent.
“We want to see boards and senior management further embed the interests of customers into their firms’ culture and purpose.”