September 3, 2024

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by: kiran

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Tags: "Regulation"

TR24/2: FCA thematic review on Product Governance in insurance

The FCA has published TR24/2, revealing important findings on product governance within the general insurance and pure protection sectors. After analysing data from 28 manufacturers and 39 distributors across 10 different products, the FCA identified key areas where improvement is still needed.

Key Messages:

Despite some progress, the FCA remains concerned about significant gaps in product governance. Many insurers and brokers still struggle to demonstrate that they are delivering fair value and good outcomes for their customers.

Key Findings

The FCA’s review highlights distinct issues for both Manufacturers and Distributors:

For Manufacturers:

  • Product Governance Arrangements: Many firms lack effective frameworks aligned with PROD 4, making it difficult to assess product value or address issues proactively.
  • Fair Value Assessments: Some firms fail to consider the full price, including the impact of remuneration, when assessing product value. Monitoring and analysis are often insufficient.
  • Target Market: Target market statements are frequently too broad, risking sales to unsuitable customers.
  • Distribution Arrangements: Distribution strategies are often inadequately tailored, with poor communication of product information to distributors.

For Distributors:

  • Governance Structures: Many firms lack clarity and detail in their governance and distribution arrangements, failing to meet PROD 4.3 requirements.
  • Information Gathering: Processes to collect necessary information from manufacturers are often ineffective.
  • Distribution Strategy: There is frequently insufficient analysis of how remuneration impacts product value, with inadequate MI to support decision-making.

What Firms Need to Consider

The FCA’s stance has become more assertive, indicating that firms must take immediate action to comply with regulatory expectations.

Manufacturers should focus on:

  • Establishing robust product approval processes with senior management oversight.
  • Conducting thorough Fair Value Assessments with clear, evidence-based conclusions.
  • Monitoring product performance to ensure it continues to offer fair value and address issues promptly.
  • Sharing relevant product information with distributors in a timely manner.

Distributors should ensure:

  • Strong governance around distribution arrangements, including senior management involvement.
  • Effective communication and information-sharing with manufacturers.
  • Comprehensive and detailed distribution strategies, including target market, remuneration, and product value considerations.
  • Rigorous MI and analysis to assess the impact of their activities on product value.

How Padda Consulting Can Help

Identifying gaps in your product governance can be challenging. At Padda Consulting, we have extensive experience in helping firms review and enhance their governance arrangements.

If the FCA’s findings have raised concerns about your compliance, we can help you take prompt corrective action—whether it’s refining your Fair Value Assessments, enhancing your governance processes, or ensuring your distribution strategies meet regulatory standards.

Need assistance? Contact us. We’re here to help you navigate these complex requirements and ensure your operations are fully aligned with the FCA’s expectations.