FCA insurance market priorities

Introduction

This article summarises the Financial Conduct Authority’s (FCA) letter addressed to the CEOs of UK insurers published on 20th September 2023. The purpose of the letter was to provide an update on the FCA’s priorities for the insurance market, spanning from 2023 to 2025.

Insurance Market-Wide Priorities

The letter sets out four market-wide priorities which are consistent with FCA’s strategic outcomes and commitments:

1. Consumer Duty Implementation:

The FCA underscores the importance of consumer duty, especially in the current challenging economic environment. This duty requires firms to prioritise consumer needs and address issues related to products and services; pricing and value; and consumer understanding and support.

2. ESG priorities – Governance and Culture:

The FCA encourages firms to promote diversity in their workforce across all levels, and assess and enhance culture drivers such as leadership and governance which will help in understanding customers’ diverse needs. The letter notes the FCA’s disappointment of progress in the wider market in this area.

3. Operational Resilience and increasing reliance on third parties:

The FCA notes particular concern about operational disruptions and highlights the importance of firms being well-prepared and operationally resilient to prevent, adapt to, recover from, and learn from such disruptions. The letter draws attention to risks around cyber-attacks.

4. Oversight of Appointed Representatives:

The FCA is vigilant about the oversight of Appointed Representatives (ARs). It expects principal firms to take assertive action when ARs do not meet high standards and rules as outlined by FCA (on 8th December 2022) and to ensure ARs operate within those standards.

Life insurance sector priorities

1. Putting consumers’ needs first:

Price and value: Stressing the importance of delivering fair pricing and value in various insurance products.

Dealing with problem firms: Consumer support and service quality: Ensuring timely and high-quality customer support, addressing slow response times, and improving service standards should be top priorities for the insurance companies as per the consumer duty.

Effective customer journeys: Understanding and enhancing customer journeys, especially around retirement, are key focuses to improve customer outcomes. It expects firms to demonstrate that they provide effective support to customers throughout their journey.

Supporting customers in financial difficulty: Given changing customer behaviours, firms must proactively understand and mitigate potential harm to financially vulnerable customers.

2. Minimising the impact of operations disruptions: Effectiveness of outsourcing oversight:

The FCA highlights that the ultimate responsibility for customer outcomes still rests with the insurer, even when activities are outsourced to Third-Party Administrators (TPAs). Both the insurers and TPAs need to understand and implement their respective responsibilities under their duty.

3. Putting consumers’ needs first: Suitability and value of life protection products:

The FCA addresses poor selling practices of protection products and urges insurers to monitor brokers’ activities to ensure they offer fair value.

4. Strategy for positive change – our ESG priorities: Sustainability-related investments and disclosures:

Firms are encouraged to align their operations with sustainability goals, including the net-zero transition, and communicate sustainability claims clearly and fairly. Firms’ publications should align with the TCFD disclosures alongside clear communication and knowledge transfer to the customers regarding the sustainable investments made by them.

5. Smaller Firms Engagement:

The FCA recognises the significance of smaller firms and mutuals and will engage with them to ensure they meet Consumer Duty requirements and deliver good customer outcomes.

Conclusion

The letter outlines the FCA’s commitment to rigorous oversight, regulatory enforcement, and continuous improvement in the insurance market. It expects insurance firms to take concrete actions to address these priorities to ensure that they meet the FCA’s requirements and ensure the market functions well while meeting consumer needs.

As noted in the letter, a significant part of the FCA’s activities over the next two years will be on testing firms against their priorities and expectations.

Source: Life insurance portfolio letter: insurance market priorities 2023-2025 (fca.org.uk)