The UK’s Financial Conduct Authority worries many insurance firms are not prepared for upcoming product governance regulation changes.
The regulator is eager to ensure consumers have fair value, as part of this, it investigated how firms designed, sold and reviewed their products to meet the needs of customers. It found that firms are making good progress on meeting existing rules and guidance around product governance and value, which was issued in 2018 and 2019.
Furthermore, the regulator was happy with work based on temporary guidance that was issued in the fallout of the Covid-19 pandemic.
However, the FCA is concerned “too many” firms fail to meet the governance standards. This makes it likely they will be unprepared for the new enhanced rules on product governance, which are scheduled to enter into force on 1 October 2021.
One of the weaknesses identified in the report is a lack of focus on customers, outcomes and product value. While another issue was around shortcomings in governance and oversight of products.
The FCA stated it is not always clear is a firm had adequate processes to assess how much a broker is paid has reasonable relationship to the costs or workload to distribute the product as set out in previous guidance.
FCA executive director for supervision, policy and competition Sheldon Mills said, “We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready.
“Where firms are not consistently meeting existing requirements and expectations, it risks harm through poor value products or products being sold to the wrong customers. These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.”
The new rules are part of a series of updates aimed at tackling loyalty penalty and ensure firms give fair value to all customers.
Updates to the governance rules were drafted as a response to its study into general insurance pricing practices. It had found home and motor insurance markets were not working well for consumers, particularly loyal customers, it said.
The changes aim to ensure firms provide fair products to all customers.
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