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Dear CEO | Release Date: 10th April 2019

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 issued a letter to CEOs of general insurance (GI) firms, emphasising the importance of fair treatment in the GI distribution chain. The FCA has published a thematic report which reveals significant risks of harm to customers, including inappropriate products and inflated prices due to inefficiencies in distribution. These issues stem from inadequate product value consideration, poor product design, ineffective distribution oversight, and conflicts of interest arising from remuneration structures.

Despite previous interventions, such as the thematic reviews TR15/7 and TR16/6, the FCA notes that many GI firms have not adequately prioritised customer outcomes or addressed the highlighted concerns. The FCA has taken regulatory actions against firms like Liberty Mutual Insurance Europe SE and The Carphone Warehouse for related failings and warns of further actions if necessary.

The letter underscores the impact of the Insurance Distribution Directive (IDD) and the Senior Managers and Certification Regime (SM&CR), which aim to improve industry standards by ensuring firms act in the best interests of their customers. The SM&CR, in particular, increases accountability within firms, focusing on senior management’s responsibilities towards customer outcomes.

Firms are expected to assess the value provided to customers thoroughly and maintain effective control over product distribution and remuneration practices. The FCA has proposed non-Handbook guidance to clarify expectations further, ensuring that all entities in the distribution chain contribute positively to the value received by customers.

Key Take-Aways:

GI firms must urgently review their product and distribution practices against the FCA’s findings and guidance, ensuring they align with regulatory expectations for customer fairness and value. Firms should prepare for increased FCA supervision and potential enforcement actions if they fail to meet these standards. The content of this letter should be shared with firms’ Boards to ensure comprehensive compliance and immediate corrective measures where necessary.

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