This week’s FCA webinar brought a refreshingly pragmatic tone to discussions around product governance and fair value, with the regulator emphasising its intention to reduce unnecessary burdens and support better outcomes through flexibility and proportionality.
Several proposed changes are expected to ease compliance pressures, especially in areas where over-interpretation or duplication of the rules has crept in. One such example is in relation to co-manufacturing arrangements.
Clarity on Co-Manufacturing Responsibilities
The FCA is proposing that firms involved in co-manufacturing should be able to designate a lead manufacturer to take responsibility for governance and compliance. This would remove the need for every party to undertake the full suite of compliance activities individually, easing the operational load.
Brokers, however, would not be able to be classed as a lead manufacturer and that responsibility will always need to be assumed by an insurer.
Indeed, throughout the session the FCA reiterated that assessing and monitoring fair value is primarily the responsibility of the insurer. Distributors are expected to understand the target market and avoid actions that could erode value, such as charging excessive fees or combining add-ons in a way that diminishes customer outcomes, but there’s no requirement for them to reassess the insurer’s fair value assessment.
Another area where the regulatory burden is being eased concerns the scope of Consumer Duty, which is now being narrowed to only apply to firms whose customers are eligible to be managed by the Financial Ombudsman Service. This should bring welcome clarity for commercial insurers and brokers and remove the regulatory burden of treating large corporate clients as retail consumers.
Greater Flexibility Around Review Frequency
A major development is the proposal to remove the mandatory 12-month frequency for fair value assessments. Under the revised guidance, firms will be free to assess products at intervals that reflect the product’s risk profile and complexity.
This flexibility will allow insurers to focus resource where it is most needed – on new or higher-risk products – while streamlining reviews for stable, lower-risk offerings. That said, insurers will still be expected to reassess more frequently if underlying data points to changing risks or outcomes.
Benchmarking: A Valuable Tool
In response to a question from the audience, the FCA also highlighted the value of benchmarking under Consumer Duty.
Used effectively, it can help insurers and brokers identify products that are underperforming relative to the wider market, offering a clear signal for further investigation. The FCA described it as a useful tool – particularly for spotting outliers – and said it can support firms in making informed decisions about where to focus attention.
They were keen to point out, however, that a product being in line with the market doesn’t automatically mean it’s delivering fair value or good customer outcomes – particularly if there are systemic issues in that product class – and should not be relied on as such.
As with any dataset, it is important to consider the context of the data being analysed, and that is why at Insurance DataLab we work diligently to ensure consistency across individual businesses and product lines.
This enables users of our benchmarking platform to compare performance across different markets with credible, comparable and digestible data across a range of metrics from customer experience and claims, to complaints handling and underwriting results.
This can support compliance teams in identifying risk areas and refining product governance strategies through a 360-degree view of the market.
Whether you’re conducting fair value assessments, evaluating capacity and distribution partners, or refining your placement strategy, Insurance DataLab provides the insight to act with confidence.
Want to see how Insurance DataLab can support your fair value assessments and wider compliance needs? Contact Tariq Kench for a free demo.