Our Compliance Director, Shyam Raikundalia explains why the Financial Conduct Authority’s (FCA) focus on fairness and transparency will test the market’s procedures and will demand a response.

In January 2020, the FCA began research into the way in which Insurers and MGAs were meeting their requirements to treat their customers fairly. The result of those enquires are likely to see the regulator take a more rigid approach to the conduct of insurance distribution particularly around household and motor risks. These risks are those which are more likely to be taken out by the younger generation, many of which will be buying insurance for the first time. It leaves them open to a lack of understanding of what they are entitled to from their policy and risk carrier. For instance, during the COVID pandemic most drivers have significantly reduced their mileage and could have expected that insurers would have sought to recognise the reduction with a refund of premiums. Some insurers have made refunds while others have not, but the FCA is likely to look at ways in which insurers can be fairer to their customers in such circumstances.

Another area of concern for the FCA is price setting. It has long been an issue that at renewal policyholders will all too often not be rewarded for their loyalty or their claims record. Many will see a 10% price hike while new customers will be offered a 20% reduction. At Davies we have undertaken a detailed personal premiums review with our Appointed Representatives (ARs) to examine if we are treating both existing and new policyholders fairly, and to ensure that we are complying with the rules arising from the ongoing concerns from the regulator.

We still see within the market that some Insurers and MGAs at renewal, do not make it as clear as it should be that customers should shop around to ensure they are getting the best cover. Policyholders should be clearly informed of the recommendation that they are able to seek alternative options. It needs to be transparent and not hidden away within the process in line with renewal transparency.

We are also likely to see a renewed focus on product governance. The regulator’s concern is that many MGAs do not have adequate systems and controls in place to ensure their products deliver fair value. It requires Insurers and MGAs to probe their products a little deeper to ensure their products are clear and transparent. By that I mean that it is made quite clear what is and is not covered and that coverages that the customer simply does not need are not included in the policy but should be clearly badged as add ons for additional premium. We review and approve all our ARs’ customer journeys from end to end prior to go live, to ensure they remain clear, fair and not misleading and that the product meets the needs and criteria for the fair treatment of their customers.

The same can be said for policy auto renewals. Many firms make it too difficult for the policyholder to cancel the auto renewal and as such they will simply give up trying and renew a policy, they may have been able to acquire cheaper and with more appropriate coverage elsewhere. The FCA will be requiring clear evidence that policyholders are informed that they can look elsewhere within the prescribed ‘shop around message’.

In our conversations with our ARs we stress that good competition equals better customer engagement and a better informed customer. The regulator is likely to increase their efforts to see that steps are actively taken to increase market trust and that compliant processes are not simply the responsibility of the compliance team.  The ultimate responsibility for compliant processes  remains with all relevant functions including the senior leadership team and board members,  and as such we all need to be playing our part in the bigger picture.

For more information on compliance, please contact Shyam Raikundalia, Compliance Director on Shyam.Raikundalia@davies-group.com