The Year Ahead for Insurance Regulation: How to handle and prepare for change

Key Messages:

With the implementation of the Consumer Duty in 2023, it was certainly one of the biggest shake ups that the insurance sector has faced for some time. 2024 is set to be no different, with continuing market and economic pressures and upcoming regulatory change as well as the embedding of last year’s regulatory developments, there will be no slow-down for the sector with hardly time to take a breath!

Consumer Duty: The FCA will be scrutinising how firms are delivering good customer outcomes and the ongoing requirements of the Consumer Duty – for firms, the Duty should move from the implementing phase to the embedding of the requirements. 2024 will also be the first time that firms are required to submit a report to their Board or Governing Body that assesses whether they are delivering outcomes that are consistent with the Duty. As well as this, firms need to ensure that they have identified any products that meet the “closed products” definition and that these have been reviewed in line with requirements.

Approach to Regulation: On top of the Consumer Duty, we can expect further information on the Edinburgh Reforms and should gain a better insight into how financial services will be regulated in the UK going forward and how the decoupling from the EU requirements will work in practice – will it be more streamlined, smarter, or will there be added requirements the GI sector needs to meet? We can also expect updates on the effectiveness of the Senior Managers and Certification Regime (SMCR). The consultations from last year sought views on whether the regime has delivered what it intended, and whether any improvements or changes are necessary. Having just got used to the current regime, can we expect this to change again?

Environmental, Social, and Governance (ESG): ESG areas have been mainly focused on other sectors within financial services and insurance, and we expect it to now shift to the insurance broking community. The general feel is that GI firms have a lot more work to do and in ensuring that ESG requirements are reflected in their overall strategies. Firms should identify the key ESG areas that may impact them and document their approach to such.

Operational Resilience: This is another area where regulatory scrutiny has mainly been focused on insurers rather than the broking world so this is another subject where we can expect further developments. Firms need to ensure that they have documented the processes they have implemented that enable them to continue servicing customers and meeting their responsibilities in response to certain events. This ties closely in with the Consumer Duty and in ensuring that customers are experiencing the right outcomes – even in the event of disruption to your business!

Appointed Representatives: For those of you that have ARs, it’s no secret that the FCA will be scrutinising your supervision of such more closely and how you have met the enhanced regulatory requirements in this area. It is important that you can evidence that you treat ARs as an extension of your own business and that they are provided with equivalent oversight and monitoring.

The above are only some of the key areas that Padda see as being at the forefront of regulatory attention for 2024, there will be more as the year goes on, such as the increased use of Artificial Intelligence (AI) and how this can be regulated going forward. All of this on top of ensuring that your firm can win new business and retain existing customers – it won’t be easy!

What Firms need to consider:

Below are some key questions that firms should ask themselves at the start of 2024 – this won’t capture everything but gives a good indication of where to start!

• Have you identified your population of Closed Products and carried out a review of such to ensure that the Consumer Duty outcomes will be achieved?
• Are you able to evidence that you have embedded the Consumer Duty requirements and that this is becoming BAU(Business As Usual)?
• Do you have the required information to enable you to submit your first Consumer Duty Annual Board report?
• Do you have the processes in place to identify upcoming regulatory developments that may impact you and ensure that relevant, pro-active action is taken?
• Have you thought about your ESG strategy and the key areas in relation to this that may impact you?
• Are you operationally resilient? Are you able to provide evidence to the FCA as to how you would remain operational and continue servicing customers in the event of certain scenarios?
• Can you evidence that ARs are treated as an extension to your business? Have you carried out appropriate supervision and monitoring in this area? Can you get the Management Information (MI) you require to evidence this?

There is much to think about and firms therefore need to ensure that they remain on course for 2024 and devote appropriate time and resource to give these areas the attention they require. As with everything, the key is being able to evidence that these areas are being appropriately actioned – without the evidence, it is more than often assumed that what you say is happening, isn’t actually happening in practice. Should you require support in any of these areas or any other regulatory matters, please do not hesitate to contact us.

Padda Consulting, putting your business in better health with compliance to feel good about.