FCA multi-firm review of customer outcomes by smaller mutual life insurers

5 March 2026

Tags Insurance Financial services Risk consulting

The FCA looked into how smaller mutual life insurers met the Consumer Duty and delivered good customer outcomes. It shared the findings in January 2026 - relevant to all mutuals and life insurers.

The review looked at how 13 mutuals were meeting their obligations under the Consumer Duty and Product Intervention and Governance Sourcebook (PROD). Where relevant, the FCA assessed the treatment of with-profits[1] customers against Conduct of Business Sourcebook (COBS). The FCA considered firms’ information, including:

Business plans and, where relevant, their assessment of compliance with COBS 20.
Analysis of changes to their Own Funds[2] and commentary for the previous three financial years[3].
Fair value assessments.
Product terms and conditions.
Own Risk and Solvency Assessments (ORSA).

The FCA did not look at closed books but said that firms should consider the findings for those products. The FCA gave firms individual feedback and expects further steps to improve outcomes where needed.

Findings – good practice and areas for improvement

Identifying target markets

Good practice

Areas of improvement

Strong focus on understanding customers with a clear and thorough target market statement. Examples were:

Conducting market research to understand the target market’s need for a particular product
Identifying customers who would be unlikely to receive fair value
Tailoring products to a specialist target market, such as specific professions or jobs
Distributing products in the best way for customers’ circumstances
Checking that customers understood the purchased product through after sales support.

Only broad statements describe target markets that:

Do not identify and describe customers
Do not show a clear understanding of the needs and characteristics of the target market
Are unclear on who the product would not be suitable for.

Fair value assessments
Good practice	Areas of improvement
Strong and clearly defined metrics to measure value, with:	Limited conclusions that rely on one benefit, such as the ease of purchasing the product, rather than the overall quality and related services.
For protection products:
MI showing how non-financial services that are linked to a product are being used by customers (such as access to online GP services).	Being unclear on how non-financial benefits add value or how their costs relate to the total price. Reliance on comparing prices and benchmarking on their own. A lack of appropriate MI to monitor whether customers are getting fair value.
For savings products:
Forward-looking MI covering everything that made up the product’s premium Minimum thresholds identifying when a product wouldn’t provide fair value.	Failure to show how higher charges in the early years of a product continue to offer fair value. Failure to consider whether product charges reflect the services provided. Conclusions do not consider the likely return to policyholders.

Fair treatment of with-profit policyholders [5]

Good practice

Areas of improvement

Strong understanding of the outcomes being delivered to with-profits customers:

Considering the implications of volumes of with-profit vs non-profit business alongside profitability and sales.

Unclear rationale for how:

The business strategy met COBS 20.2
Any potential conflicts of interest between policyholder groups and members were being managed
Operating practices were fair to with-profits policyholders.

Limitations in assessments from:

Failing to show how the volume of new with-profits business was consistent with fair outcomes for both existing and new with-profits policyholders
Not outlining how the sale of non-profits business into a with-profits fund was consistent with the fair treatment of with-profits policyholders
Failing to consider if the sale of low volumes of with-profits policies and comparatively high volumes of non-profits policies introduced a risk for with-profits policyholders (where they absorb losses). Also failing to consider this risk where the run-off of with-profits business is faster than the run-off of non-profits business.

Financial operating models

Good practice

Areas of improvement

Emphasis on the importance of placing customers at the heart of the organisation, making it clear that customer-centricity is fundamental to business strategies and success.

Inconsistencies in assessing future viability. Some assessments would not support timely decision making on strategic direction. Examples included:

Firms with a large number of Child Trust Fund holders who may withdraw their money in the next few years following their 18th birthdays.
Expenses that were higher than expected and business plans indicating an increase in future expenses per policy, or as a percentage of assets.

Whilst not directly within scope, the FCA found differing levels of understanding of ‘goneaway’ customers [6]. As well as having implications for consumer support and understanding, a clear view of goneaways could help in reserving for estimated future liabilities to pay policyholders (and determining any distributable surplus) in with-profits funds.

What are the next steps for life insurers

The FCA referred to challenges for firms in meeting aspects of COBS 20. The FCA will continue to engage with the industry as part of planned work on opportunities and potential regulatory barriers in the Life & Pensions market.

The FCA mentioned engagement with, and support for, the Law Commission’s recent work in reviewing friendly society legislation[7] and changes to the transfer process. In the meantime, where mutuals undertake a transfer of engagement, the FCA reminded firms that it will consider each transfer on a case-by-case basis.

The FCA will continue to monitor firms against the Consumer Duty.

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References

[1] A ‘with-profits policy’ is a long-term insurance contract where policyholders participate in discretionary distributions of profits from the insurer's business. Premiums are pooled and invested, providing returns via guaranteed amounts increased by discretionary annual and terminal bonuses.

[2] (the portion of a firm’s total capital available to cover their regulatory capital requirements, after they have accounted for liabilities expected to be paid to policyholders)

[3] Ending 31 December 2023.

[4] Note that several firms in the review sold investment and savings policies such as Tax-Exempt Savings Plans, ISAs, endowments and whole of life investment bonds.

[5] Some mutuals operate a with-profits fund, into which both non-profits and with-profits insurance business is written - firms must follow the requirements in COBS 20.2 when formulating their business plan and the sale of new (both non-profit and with-profits) business.

[6] The group of customer firms had lost contact with.

[7] https://lawcom.gov.uk/project/friendly-societies/