Portfolio Letter on Risks Life Insurance firms pose to consumers or markets

Dear CEO | Release Date: 18th May 2020

To read a longer summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Short Summary

The Financial Conduct Authority (FCA) has addressed key risks posed by Life Insurance firms to their customers and the markets. This letter outlines the supervisory strategy for a two-year period starting in April 2018, focusing on identifying, diagnosing, and remedying potential harms caused by Life Insurers. The FCA emphasises the importance of managing funds effectively to ensure customers have sufficient savings and income in retirement, providing accurate product or service expectations, and maintaining operational reliability to prevent service or payment failures.

The letter identifies the complexity of Life Insurance products, infrequent customer interactions, low financial literacy among consumers, and inherent conflicts of interest as critical areas that could lead to customer detriment. It highlights the crucial role of firm leadership and governance in fostering a culture focused on consumer outcomes.

The FCA’s supervisory priorities include evaluating firms’ governance and culture, resilience and outsourcing, and specific product governance like unit-linked and with-profit funds. The supervision will involve thorough assessments of firms’ strategies and business models, particularly how they manage, conduct risk and ensure value for customers.

Key Takeaways and Actions:

Life Insurance firms are urged to assess and mitigate the risks identified, with a focus on improving governance, culture, and operational resilience. Firms should ensure that their products and services meet consumer needs and expectations, particularly through periods of change or disruption. The FCA will continue to monitor these areas and expects firms to demonstrate compliance and proactive management of identified risks. Firms are also reminded to prepare for regulatory changes, including those related to the UK’s withdrawal from the EU and the transition away from LIBOR.