Product Governance Thematic Review – General Insurance and Pure Protection

Key Messages:

In March 2023, the FCA began a thematic review assessing insurance manufacturers’ and distributors’ product oversight and governance arrangements and whether firms are meeting their obligations. The FCA has now issued an update letter to firms to share their key observations and concerns so that any issues can be addressed as quickly as possible.

While most product manufacturers have materially strengthened their product oversight and governance arrangements, there are still some shortcomings or inconsistencies in the application and evidencing of the product governance and value assessment framework.

The FCA have found shortcomings in areas such as:

• Product Governance and Oversight arrangements
• Fair Value Assessments
• Management Information

As well as the above, some firms did not provide real challenge and scrutiny of product value or provide clear evidence that their products offer fair value. In some cases, manufacturers’ assessments did not result in any substantive action being taken where value issues were identified.

Shortcomings were found in the target market statements produced by many firms with these being too high level and therefore increasing the risk of selling products to customers who are unlikely to receive fair value.

Co-manufacturing arrangements between manufacturers and distributors were often lacking, with inadequate agreements in place and with insurers relying on the intermediary co-manufacturer without coordination or verification of what was being done.

What Firms need to consider:

The FCA has made clear that the information and evidence provided to them by most firms was not sufficient to consistently demonstrate that the products reviewed were offering fair value to customers.

The FCA will continue to assess the information that has been provided to them by both manufacturers and distributors and plan to publish a final report in Q2 2024.

The FCA has stated that they are actively considering the need for further supervisory and regulatory action to address the issues identified and that firms failing in this area can expect the FCA to intervene using their full range of regulatory tools.

It is very important therefore that all firms identify and address where the issues the FCA outline in their letter may be applicable to them and their products and that appropriate action is taken to address any gaps.

Firms need to read and digest the information contained within Annex 1 of the letter to determine where they may not be meeting regulatory obligations and any risks of consumer harm arising from any shortcomings in your approach – do this before the FCA has any cause to intervene!

Should you need assistance carrying out this exercise or addressing any gaps you have found, please do not hesitate to get in contact with us.