Fewer than 8 lines into the FCA's Business Plan for 2014/15, Martin Wheatley reminds us of just some of the regulator's work over the past year. Interest only mortgages, add on insurance, introductory rates of interest on accounts. He goes on to say "there must be no let up to the pace of our activities for 2014/15."
This year's plan is punchy, particularly well laid out in comparison to prior years and sends a very clear message. Accountability of responsible persons in firms needs to be improved, wrong doing will be responded to promptly and effectively and rebuilding consumer trust is paramount.
Below we set out a high level summary of what the business plan means for the insurance industry.
Payment protection complaints and how proactive and fair firms are in addressing complaints continues to be a focus. This resulted in several large fines being levied in 2013 and the pressure to contact consumers, even where they may not have complained, continues.
Advised and non-advised sales
The FCA is keen to manage a perceived expectation gap in consumer understanding on when a sale is advised or non advised and plans to look at whether disclosures around the basis of the sale can work better for consumers. Firms should ensure that they provide consumers with sufficiently clear information on the basis of the advice prior to the sale.
The FCA will be more intensive in its supervisory approach than the OFT was previously, something it can achieve as it has more powers than its predecessor. Brokers who are involved in the introducing and broking of premium credit, as well as the collection of premium credit debt from consumers, need to apply the same principles of fairness for consumers and transparency to the credit distribution arrangements as they do to the insurance sale itself.
Unfair terms continue to be a big focus and the theme of the customer being at the heart of how the firm does business remains key. Continued emphasis on products and services being appropriate for consumers will require insurers and brokers to continue to monitor whether a product is suitable for a customer segment, meets their needs and responds when an appropriate claim is made. This monitoring should occur at the product development phase as well as on an ongoing basis
As the FCA plans to draw information from consumer bodies as well as complaints data, even unsuccessful FOS complaints could fall to be analysed if they have been escalated to the right body.
Culture and governance
The FCA will continue its work to ensure integrity and fairness for consumers is embedded in firms through the right culture, governance and risk management controls, including monitoring risks such as poor sales practices. Firms that have previously struggled to fully embed sound governance and risk management controls throughout their business need to ensure this is a priority for the coming year.
Wholesale and coverholders
The FCA is committed to considering the impact on consumers and SME customers buying products via wholesale firms. This review is possibly linked to findings from the conflicts of interest review, where the FCA has looked at the potential consumer detriment arising from retail brokers placing business into wholesale managed delegated authority arrangements, although the findings from this review are yet to be published.
The FCA's work on distribution chains also continues with the addition of risks relating to product design in complex distribution arrangements being up for review as well as sales and post sales activities. There is a stated commitment to improve the way intermediaries identify and manage conflicts of interest, which signals found failings from the recent conflicts review.
Firms should ensure that they provide clear information to their customers on the basis on which they are acting as well as ensuring that they have appropriate controls in place to mitigate the risks of conflicts being improperly managed. Firms should also ensure that in any delegated authority arrangement, there is complete clarity on who is responsible for the product, the sale, managing claims and dealing with complaints.
Of particular note is the concern from the FCA that firms may be taking advantage of consumer inertia on large renewal books and that because of the cost of acquiring a customer, consumers may then subsequently not be offered the best rates. The FCA has been reviewing the automatic renewal of home and motor insurance and the pricing of renewals is likely to have formed part of this review, but again we cannot be sure as the results are yet to be published. Although the concern in relation to inability to switch is focussed on the life sector, the cost of inertia is relevant to life and general insurance.
The FCA also states its intention to assess competition issues in the wholesale market, identifying potential candidates for market studies. It does not state whether this will or will not involve the insurance sector.
A new theme as a result of its new responsibilities in relation to consumer credit, the FCA intends to look at sales practices and disclosures in relation to premium finance. All firms involved in intermediating premium finance will need to ensure they have the appropriate licences to do so, as well as appropriate client disclosure and conflict management processes. Premium finance contracts are separate to the main insurance contract and are often sold on a non advised basis. The difference between the basis of the advice for the insurance, versus the basis of the advice for the premium finance therefore needs to be clear.
Motor legal expenses and mobile phone insurance
Firms will be reviewed to ensure recommendations from last year have been embedded. For details on the recommendations please see our previous blogs on Motor legal expenses insurance and mobile phone insurance.
The FCA refers to the publication of the new client money rules for intermediaries, although it does not fix a date. But the FCA does refer to pending guidance on how to use and operate non statutory trusts. We will update you when this is released.
This work will build on the work undertaken in the consumer context, looking at whether customers' expectations are met in the claims process and whether the management of claims could lead to poor client outcomes as well as a lack of trust in the market. The review does not refer to the proposed Business Insurance Law Reform, the impact of which the FCA should consider when looking at whether remedial action is required.
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