30 second summary

  • The FCA has published finalised guidance (FG19/5) for insurance product manufacturers and distributors involved in the general insurance ("GI") distribution chain
  • Firms must consider the value provided by product and distribution arrangements to the customer
  • The FCA's earlier thematic report (TR19/2) warned firms involved in the design and sale of GI products that they must do more to protect customers from harm (see our "At a glance" guide on TR19/2)
  • The guidance is part of a broader FCA focus on product value

Focus on product value

Manufacturers and distributors of GI and pure protection products must focus on value in the design and distribution of their products. They should interrogate information already available to them and consider the need for more information on how value flows through the distribution chain.

The FCA's cross-sector priority of increasing fairness in pricing and product value involves a range of issues. The guidance aims to provide further clarity on (but not amend or go beyond) existing rules and established expectations of firms.

Actions for manufacturers

Manufacturers’ product approval processes should focus on (and record) the benefits a product is intended to provide to the target market and value considerations of that target market. 

Methods for assessing product value

• Use as much available data as possible - customer research, claims and complaints data, analysis of competitors’ products and relevant data published by the FCA. 

• Consider the difference between the risk premium and the final selling price paid by the customer and whether there is a reasonable relationship to the benefits or services actually provided – firms should: 

  • use existing information to understand who does what in the distribution chain;
  • consider whether it is “necessary and reasonable” to ask for more information from other parties within the distribution chain;
  • ask other parties for cost/remuneration information directly, or ask them to demonstrate how their remuneration is consistent with the obligation on distributors to act in the customer’s best interests; and
  • note any wider legal obligations (e.g. competition law).

• Obtain appropriate and reliable ongoing management information from parties within the distribution chain to assess whether delegated activities are being conducted in line with the manufacturer’s obligations.

• Where the product review process indicates a risk of harm to customers, respond appropriately – consider: 

  •  amending the product; 
  • changing the distribution and/or remuneration strategy; 
  • focusing on a different target market; and 
  • if no alternative is available to remedy the risk of harm, potentially withdrawing the product. 

Scope of the guidance 

The guidance applies:

• to all manufacturers or distributors of GI or pure protection products, including authorised firms and appointed representatives; and

• to all GI or pure protection products, whether or not they were covered by the May 2019 thematic review – although all products will function differently, product value should remain a focus for all firms.

Actions for distributors

The FCA anticipates that distributors are “well placed to identify initial signs of a product resulting in customer harm”. They are expected to: 

• Understand the manufacturer’s assessment as to the intended product value.

• Monitor whether this product value is actually being achieved –distributors should recognise that intended product value may not be realised where: 

  • their remuneration bears no reasonable relationship to their costs or workload;
  • their involvement in the distribution chain provides little or no incremental benefit to the customer;
  • they are incentivised to propose or recommend products which either do not meet the customer’s needs or do not meet them as well as an alternative product;
  • they are able to determine the final selling price themselves; and
  • fees are charged once customers are already committed.

• Inform the manufacturer where harm is identified and, if necessary, amend the distribution strategy (e.g. choose an alternative distribution method, reduce the amount of remuneration received, or potentially stop distributing the product).