UK insurers continue to grapple with new fair value rules

After a slew of new rules put pressure on the UK insurance sector, the regulator is increasing its focus on supervising provider conduct. This scrutiny challenges insurance providers to put product o


After a slew of new rules put pressure on the UK insurance sector, the regulator is increasing its focus on supervising provider conduct. This scrutiny challenges insurance providers to put product oversight and governance procedures in place when designing and selling products, and ensure they operate as expected, are fit for purpose, and offer fair value to customers.

The Financial Conduct Authority’s (FCA) new rules, which have come into force over the last 12 months, aim to address the insurance sector’s failure to consider the value its products and services provided to customers.

These failures were identified in an FCA review that looked at how firms designed, sold and reviewed their products. The review found weaknesses such as not enough focus on customers, outcomes, and product value, including value in the context of Covid. It also found shortcomings in governance and product oversight, as well as issues around broker remuneration.

In 2021, the FCA warned that many firms were not ready to meet compliance deadlines. It said: “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. 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.”

Impact of the new rules

The new fair value governance rules are binding on insurance manufacturers and distributors. They apply to retail and commercial product lines, but exclude contracts of large risks such as railway rolling stock and companies with more than 250 employees.

The rules will impact general insurers and intermediaries; life assurers and intermediaries selling pure protection business; brokers; consumer business; core product underwriters; and managing agents.

The rules state that manufacturers of non-investment insurance products must ensure their product approval process identifies whether it provides fair value to customers in the target market. This must be for a reasonably foreseeable period, including following renewal.

Firms must also show how their business model, culture, and actions taken ensure fair treatment of all customers, including vulnerable ones.

Are you on top of compliance?

Though the new rules are now in force, companies still face a range of compliance challenges. Here is a summary of what is now required.

The new rules on appropriate systems and controls, product governance and related glossary changes took effect on 1 October 2021.

Its pricing and auto-renewal remedies, premium finance disclosure rules and reporting requirements, and related glossary and administrative changes took effect on 1 January 2022. A single senior manager of each relevant firm must also make an annual attestation. The deadline for their first attestation or a nil return was 31 March 2022.

Firms had until 17 January 2022 to implement the pricing and auto-renewal disclosure remedies fully. But since 1 January 2022, they have had to start paying redress or repayments to customers if an implementation delay impacts them negatively.

The FCA issued a market-wide letter on 29 July 2022 stating that the deadline for manufacturers to sign-off on their products offering fair value was 30 September 2022. From then, it will become an annual review.

Firms were given a one-year transitional period to apply product approval processes on fair value assessments for legacy non-investment insurance products. This transitional period was also to ensure existing non-investment insurance products, met the new fair value requirements. This transitional period ended on 30 September 2022.

For new products or significant adaptations to existing products from 1 October 2021, the enhanced rules took effect immediately.

How Delta Capita can help

Insurance firms face many other challenges in areas such as digital disruption and cybercrime. But they cannot afford to let their focus drift away from these new requirements. If you are impacted by the new FCA insurance rules, Delta Capita can help you manage and meet your obligations. Our dedicated team have a wealth of skills and experience. We can help you:

  • Save time and cost
  • Build a product universe across your whole business
  • Help with UK, European, and worldwide platforms
  • Create a tracking list of what you sell
  • Create product exchange documents
  • Manage communications between cover holders and brokers
  • Review the fair value assessment
  • Augment a business-as-usual compliance team to relieve pressure on compliance teams
  • Collate and manage management information for fair value assessment.

We can also provide you with a dedicated project management team with regulatory expertise. To find out more, email Michael Robertson, Head of UK Consulting at Delta Capita or contact us via our website.

This article was co-authored by Paula Salifu, Business Analyst, Consulting; Claire Suttie, Senior Manager, Consulting; and Mike Booker, Consultant, at Delta Capita.