The Financial Conduct Authority (FCA) has issued a ‘Dear CEO’ letter to insurance firms on the 18th October 2021, reminding them of their obligations in relation to the enhanced product governance rules and the senior manager attestation requirement that came into force on the 1st October 2021.

The letter highlights the FCA’s concern surrounding firm’s readiness to comply with the General Insurance Pricing Practices (GIPP) remedies, which came into force earlier this year. As part of the FCA’s market study, more specifically in relation to the findings surrounding pricing practices, it was identified that a sample of firms that mistakenly did not consider themselves to be either an insurance distributor or manufacturer. This highlighted that firms did not understand how the enhanced product governance rules would impact their business.

Where firms are not aware of their responsibilities as a manufacturer or distributor of insurance, could have a detrimental impact, resulting in poor customer outcomes. The enhanced product governance rules call for firms to review not only their product manufacturing and distribution practices, but also that there is good systems and controls in place to ensure that products are well designed, approved, distributed, marketed, and managed throughout the product lifecycle to ensure it meets legal and regulatory requirements and achieve good customer outcomes.

The ‘Dear CEO’ letter asks firms to take action to establish whether they are a manufacturer or distributor, take reasonable steps to understand and comply with the product governance rules which came into effect on 1st October and notify any breaches to the FCA in a timely manner. Firms must also ensure its Senior Managers have made the necessary attestations in relation to the pricing rules.

The focus surrounding the development of products and fair pricing may indicate a further shift from the FCA in ensuring value for customers and placing further accountability on insurance firms. This echoes the values outlined in the Consumer Duty proposals, which asks firms to consider expected consumer outcomes for their products and services, subsequently, it appears the enhanced product governance requirements act as a remedy to the harm outlined in the latest Consultation Paper namely:

  • firms providing information which is misleadingly presented or difficult for consumers to understand, hindering their ability to properly assess the product/service
  • products and services that are not fit for purpose in delivering the benefits that consumers reasonably expect, or are not appropriate for the consumers they are being targeted at and sold to
  • products and services that do not represent fair value, where the benefits consumers receive are not reasonable relative to the price they pay

The FCA proposals represent a clearer and higher expectation in not only standards of care and protection for customers, but also with an emphasis on taking a proactive approach to assessing and controlling conduct risk. This proposes a potential challenge to align culture and behaviours to the new expectations for customers to always get products and services that are fit for purpose, represent fair value, and are clearly communicated and understood by the customer to make informed decisions. Furthermore, firms will be required to evidence more care when activities are more complex or deemed harmful.

Despite the ‘Dear CEO’ letter being addressed to insurance firms, the underlying principles indicate   further changes on the horizon for regulated firms, including the introduction of a Consumer Duty.

How Scott Robert can help

We’re already working with a number of insurers on ensuring they’re compliant with the extended product governance rules that came into force on the 1st October 2021. We are also supporting other financial services firms across the board on assessing the impact the new proposed Consumer Duty may have on their business.

If you would like help or advice on this, speak to one of our experts today for confidential advice by calling 0161 914 5727 to find out more.