The Protection Distributors Group (PDG) says it stands ready to help the Financial Conduct Authority (FCA) better “understand and differentiate” regulation of protection sector commission after the regulator’s warning to the market.
The PDG also warned the sector “urgently needs to address” key issues around claims, quality of advice, and the advice-guidance boundary, but was worried the FCA’s letter would not drive change fast enough.
The body called on the regulator to provide protection sector specific guidance on delivering good outcomes for customers under its Consumer Duty which acknowledges its “marked” differences to pensions, annuity, investment and general insurance.
The call comes in a letter sent from PDG chairman Neil McCarthy (pictured) to the regulator following the FCA’s letter sent earlier this week to life insurer CEOs which highlighted significant failings and concerns in the protection market, including around commission.
In the PDG’s response, McCarthy noted the comment in the FCA’s letter stating that “where regulated advice is not provided, firms consider the guidance they can provide to deliver good outcomes for their customers”, and that the FCA continues to work with Treasury to review the advice guidance boundary.
But McCarthy pointed out the “guidance for firms on how best to provide support within the current rules” refers exclusively to investment decisions.
Consequently, he said the PDG is seeking “clarity as to whether this reads through to protection in its entirety and suggest an equivalent document relating specifically to pure protection would add value and clarity.
“We strongly believe that long term financial protection insurance should be brought into scope as this will better enable consumers to benefit from the improved understanding, value, service and support outcomes that the Consumer Duty will deliver,” he continued.
The PDG also said it was “delighted” that its representations to the FCA have been reflected in their comment that they “continue to see evidence of poor selling practices of protection products data.
“While our data provided evidence of insurers taking appropriate actions in response to intelligence about poor broker conduct and remediating customers, we consider that insurers could often have acted sooner.”
The PDG was likewise delighted that the FCA “also want to see firms improve their due diligence on new brokers to avoid their products being sold to customers for whom they will not pay out as expected, and to avoid the unnecessary re-broking of policies.; and that “insurers should monitor brokers in their distribution channels to identify instances where either unsuitable product may be sold, or products do not offer fair value.”
McCarthy said its supports them “in all these efforts and have long been urging insurers to act in this way, rather than merely focussing on their own revenue protection.
“While we feel that the commission received by our members is a fair reflection of the value we add to the process, and that adjusting long-established commission structures will almost always cause unintended consequences, we stand ready to help the FCA better understand and differentiate its regulation of this area,” he added.
And while expressing gratitude for all the work the FCA has put into better understanding the current protection market, McCarthy called for the sector’s “marked differences to pensions, annuity, investment and general insurance to be further addressed by the FCA through more specific guidance” in the following areas:
- Life claims management and service standards required of insurers, OSPs and closed book administrators.
- Insurers responsibilities in assessing new distribution market entrants and the quality of customer outcomes achieved by existing ones.
- Protection retailer’s duties either side of the advice-guidance border in protection.
“We believe our market urgently needs to address these issues and worry that the very general nature of this letter might not drive that as fast as the FCA clearly hopes it will,” McCarthy concluded.