The Financial Services Consumer Panel (FSCP) has slammed the practice of loaded premiums as being “contrary to the consumer interest” and not offering fair value.
The representative body also welcomed the Financial Conduct Authority’s (FCA) study of the pure protection market.
However, it criticised the FCA’s decision to exclude regulated insurance advice from its advice-guidance boundary review and the removal of requirements for a board-level Consumer Duty champion.
Loaded premium’s not fair value
In its annual report, the FSCP said it was continuing to raise its key concerns regarding the poor conduct of firms, and consequent risk of poor consumer outcomes, in the insurance sector with the FCA.
This, the FSCP noted, particularly included loaded premiums which have been criticised by many across the protection market and is a main focus of the regulator’s investigation.
“One of our longstanding concerns is that loaded premiums are being used to generate commissions, contrary to the consumer interest. This does not offer fair value to consumers,” the FSCP said.
“Combined with inflation and the ongoing cost of living issues, consumers are facing harm which is not in line with the principles under the Consumer Duty.”
It added: “The panel also welcomed and fully support the FCA’s inaugural pure protection market study.
“We will continue to meet regularly with FCA teams to discuss this area of the industry, along with the wider general insurance market, to share insights, updates, and next steps.”
Advice-guidance confusion
In December 2023 the FCA formally excluded protection, private medical insurance (PMI) and other general insurance from its advice-guidance boundary review.
At the time this provoked split views within the intermediary market as some advisers wanted greater clarity on the protections consumers would receive from regulated advice.
The FSCP added its weight to the desire for more transparency for consumers, saying: “We remain concerned about consumer confusion around whether or not they have received regulated advice when insurance products are distributed online.”
Consumer Duty champions
The panel also vented its concerns about ongoing Consumer Duty implementation by questioning why board-level Consumer Duty champions requirements were eased and urging more best practice examples.
“The panel was disappointed to see the FCA remove the requirement for a board level Consumer Duty champion and believe this was done too soon, with the duty still in its early stages and when some firms stated how valuable they had found the champion to be,” the FSCP said.
During the past year the panel visited four firms to better understand how they were delivering the duty and measuring their progress and the outcomes for consumers.
“This insight showed that firms have taken the duty seriously and are continuing to work to deliver it,” the panel continued.
“We observed that the approach to measurement, and the measures used, differed widely between these firms with both pre-existing and new measures being used to try to evaluate both compliance with the duty and the impact on consumers.
“We would encourage the FCA to publish best practice examples here to help firms better understand how their implementation and importantly measurement of the duty is driving consumer outcomes and to identify any remaining gaps and opportunities.”
Writing in the report, outgoing FSCP chairwoman Helen Charlton said: “We were disappointed with the FCA’s decision in February to relax the requirement for firms to have a Consumer Duty board champion so soon after its introduction and absent a post-implementation review, especially given the FCA’s positive findings in their thematic review of the first Consumer Duty board reports.
“The panel believes this is not the time for firms to be relaxing their focus on duty compliance, as the FCA has often said, compliance with the duty is not a ‘once and done’ exercise, this sends the wrong signal to firms and consumers.
“For similar reasons, we were disappointed by the weakening of the FCA’s proposals to reform its enforcement process to bring an increased focus, pace and transparency to its investigations.”