1. Consumer journeys
The FCA stated that some consumers still face barriers to buying suitable cover, including complex underwriting, delays in medical evidence, unclear communications and limited product availability.
The FCA plans to tackle consumer journey friction by promoting innovation and supporting industry action to improve access.
The FCA expects firms to prompt customers to think about their protection needs when purchasing related products. In doing so, firms should carefully consider how prompts are designed and delivered. They need to balance encouraging consumers to consider their protection needs with keeping sales appropriate to individual customer needs and delivering good outcomes.
Intermediaries and insurers should consider signposting when they decline customers. This could include signposting customers who are declined cover to alternative providers or specialist intermediaries who may be able to meet their needs [3]. The FCA also talked about the Consumer Duty obligations around consumer understanding and the expectation to contact customers at suitable points during the life of a product.
2. Fair value assessments
After an assessment of how premiums and commissions are set, the FCA decided that market-wide intervention was not necessary. The FCA concluded that loaded premiums did not inherently lead to poor outcomes for consumers.
The emphasis is instead on fair value in line with the requirements in PROD 4 and demonstrating fair value to customers in the target market. Firms should consider the impact of commission arrangements on the overall price, and how these support the intended value of the product, rather than focusing on the structure or label of the remuneration arrangement.
The FCA reviewed firms’ fair value assessments and set out good examples and areas for improvement. A key message for firms is to strengthen the evidence that underpins their assessments.
When considering value, the FCA applied its GI value measures as part of its analysis. Pure protection products do not come within scope of these reports. However, the FCA’s commentary shows that firms should be considering the value measures as part of their fair value assessments, if they are not already.
3. Claims handling
The FCA found that preparatory tools [4] are promoted inconsistently, and consumers may not understand their importance. This contributes to a ‘beneficiary gap’ [5]. As a result, the FCA expects firms to take steps to improve customer understanding and the consistent take-up of preparatory tools, both at the point of sale and later in the customer journey.
The FCA wants firms to consider how they can offer a more integrated insurer‑intermediary journey.
4. Guaranteed acceptance over 50s
Guaranteed over 50s products received much focus from the FCA in the interim and final reports. Despite concerns raised, the FCA ultimately concluded that these products can provide fair value for customers in the target market with different preferences and objectives.
It is worth noting that the FCA had mentioned (in the interim report) that there could be potential findings relating to income protection claims ratios and incentives to switch customers. While there is much consideration of both these areas within the final report, the FCA does not plan to take specific action to address them. Instead, the FCA will continue to monitor outcomes from switching through its supervision.
What’s next?
Although the market study has not resulted in rule changes, firms should not treat the final report as requiring no action. They should benchmark their approach against the FCA’s good and poor practice annex, address any gaps and consider whether to participate in the FCA’s wider initiatives, with the proposed TechSprint being the most immediate opportunity.
Get in touch with Insurance experts to discuss what the findings mean for your firm and how we can support you. |
References
[1] There are many customers (58% of adults) who would benefit from pure protection, but who do not have cover. The FCA calls this the ‘protection gap’ that it wants to help close.
[2] A TechSprint is a structured innovation programme bringing together firms and others to work on a defined market challenge and develop tech based solutions.
[3] There are already FCA rules that require firms selling travel insurance to signpost consumers with serious pre-existing medical conditions to a directory of specialist firms.
[4] Such as trusts and beneficiary nominations.
[5] The percentage of policies that are not placed in trust or set up without named beneficiary nominations.
FCA interim report on pure protection distribution
The FCA is looking into the distribution of pure protection products: term assurance, critical illness cover, income protection insurance and whole of life insurance.
Key contacts
Jessie Jones Director - Risk and Regulatory Consulting - Leeds
Sarah Ouarbya Partner - Risk and Regulatory Consulting - London
Becca Peet Director - Actuarial - Edinburgh
This website uses cookies.
Some of these cookies are necessary, while others help us analyse our traffic, serve advertising and deliver customised experiences for you.
For more information on the cookies we use, please refer to our Privacy Policy.
This website cannot function properly without these cookies.
Analytical cookies help us enhance our website by collecting information on its usage.
We use marketing cookies to increase the relevancy of our advertising campaigns.