Insurers need to do more to embrace the FCA’s Consumer Duty regulations, according to compliance expert Claire Carpenter.
Speaking at a regulatory roundtable hosted by Insurance DataLab, Carpenter said that some insurers are “not taking the regulations particularly seriously” and warned that many are treating it as a box-ticking exercise.
“The FCA is, quite frankly, livid with the market and we are about to see some fines and enforcement actions over the coming months,” she said.
Indeed, since the roundtable it has been revealed that the FCA has reached an agreement with insurers to cease the sale of GAP insurance policies until changes are made so that the cover offers fair value to consumers.
Carpenter said that the problem is that some insurers have been focused on justifying their positions than actually enacting the change the FCA desires.
“Across the market I constantly hear the same thing: just fill in this form and it will all be fine,” she said. “Of course firms are entitled to make a margin, but I’m not seeing enough firms looking at reinventing products and coming up with innovative ways to reduce distribution costs – and this is where insurtechs can really help to improve overall product value, and streamline costs.
Speaking ahead of the ban on GAP sales, Carpenter said that such a move had been unheard of in the industry but expects to see more of this going forward.
“The FCA is getting very aggressive, and for them to be making amends to insurers permissions to stop them selling products is unheard of,” she said. “We’re going to see more of that over the next 12 months, and a lot of insurers really do need to wake up.”
And this regulatory action could spread to other areas of the market, with Carpenter warning that the FCA is looking closely at the value measures – and particularly the percentage of premiums paid out in claims – when deciding which products are not offering enough value for the end customer.
Our own analysis of the FCA value measures found that GAP insurance had the lowest payout rate in 2022 (the latest period for which measures are available), with just 7% of premiums paid out in claims when sold as a standalone product. For GAP sold as an add-on this figure stood at just 4%.
And there are other lines with low payout rates that could be on the FCA’s radar, including motor excess protection (15% for add-ons and 30% for standalone policies), personal accident cover (19%), and home emergency add-ons (26%).
Carpenter suggests that firms should be looking at 30%, both as a minimum for payout rates and as a maximum for commission rates. Although, she stresses that isn’t a one size fits all ratio and firms should be assessing for themselves whether those values are commensurate with the services provided.
Insurers will now be watching very closely to see where this line ultimately falls, and how their products compare.
Insurance DataLab subscribers can now access the full range of FCA value measures through our market intelligence platform. The platform also includes other data that the FCA is likely to be looking at when assessing the market, such as complaints volumes and upheld rates, and underwriting profitability. You can register for a free trial here.
