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Dear Board of Directors | Release Date: 19th August 2021

To read a shorter summary of this Dear Board of Directors letter, click here.

To access the original FCA document, click here.

Long Summary

In response to the evolving industry landscape and the unprecedented impact of COVID-19, the Financial Conduct Authority (FCA) has extended its strategic focus originally outlined in December 2018 for life insurers. This document communicates the updated supervisory strategy, including an assessment of the progress since 2018, identifies ongoing and new risks, and sets forth our expectations and the supervisory framework aimed at ensuring that life insurance firms address these risks effectively. The extension also includes the integration of regulated Third-Party Administrators (TPAs) into our supervisory remit.

Progress Review of the 2018 Strategy


Since the initiation of the 2018 strategy, the FCA has actively engaged with life insurers to mitigate risks associated with customer outcomes, product and service expectations, and operational resilience. While our evaluations have shown significant improvements in certain areas, with firms adopting more robust governance frameworks and improving customer interactions, the oversight of these implementations continues to reveal areas requiring further attention.


Notable challenges persist in ensuring that customers fully understand complex product structures and terms. Additionally, operational disruptions have occasionally hindered insurers’ ability to deliver expected services, highlighting the need for enhanced operational resilience.

Current Industry Landscape

Sector Characteristics

The life insurance sector is characterised by long-term customer engagements and complex products that require high levels of consumer trust and understanding. The ongoing pandemic has further complicated these dynamics, necessitating rapid adaptation by firms to meet changing consumer needs and operational demands.

Strategic Shifts

Insurers have responded to the pandemic by reassessing their product lines, with some firms expanding into new business areas like equity release, while others have streamlined operations by divesting non-core segments. Such strategic shifts, while potentially beneficial in the long term, introduce risks that need careful management to avoid adverse customer impacts.

Updated Key Risks of Harm

Pricing and Product Governance

There is a continued risk that customers are charged excessive fees, particularly within legacy products. Issues have also been noted where distribution strategies involving high upfront commissions could potentially lead to misaligned incentives and poor customer outcomes.

Operational Failures

The transition to remote operations has exposed vulnerabilities in IT infrastructure and data security. Operational resilience needs strengthening to prevent service disruptions and protect sensitive customer data against emerging cyber threats.

Management of Migration Programmes

Significant policyholder migration activities are underway due to consolidation efforts across the sector. These migrations, if poorly managed, could lead to substantial service interruptions and potential customer harm.

FCA Expectations and Supervisory Focus

Governance and Oversight

Firms are expected to demonstrate effective governance that can adapt to both internal changes and external shocks. This includes maintaining comprehensive oversight of outsourced functions, particularly those managed by TPAs.

Product and Service Integrity

Products and services should be designed and maintained to meet consumer needs throughout their lifecycle. This involves regular reviews of product performance, transparent communication with customers, and prompt adjustments to products as market conditions and regulatory frameworks evolve.

Operational Resilience

Firms must enhance their operational resilience frameworks to address both physical and cyber threats. This includes robust disaster recovery plans, regular security assessments, and training for staff to handle transitions and emergencies effectively.

Concluding Remarks and Next Steps

As the sector continues to navigate through the post-pandemic recovery phase and adjusts to the new regulatory landscapes post-Brexit, it is imperative that life insurers not only comply with existing regulations but also proactively engage with the FCA to anticipate and mitigate emerging risks. The FCA will continue its rigorous monitoring and engagement activities, and expects all firms to actively participate in these processes to ensure the sector’s stability and the protection of consumer interests.

Key Actions for Firms:

Enhance Customer Communications: Improve the clarity and timeliness of information provided to customers, especially regarding product features and terms.

Strengthen Risk Management Practices: Develop and implement comprehensive risk management strategies that encompass all aspects of business operations, from product design to distribution and post-sale customer service.

Regular Reporting and Engagement: Maintain regular reporting to the FCA on key operational and strategic metrics and engage proactively with the regulator to discuss challenges and strategies for addressing them.

Life insurers are encouraged to regularly review and adapt their strategies in line with FCA guidance and to actively contribute to shaping a resilient, transparent, and consumer-focused insurance market.

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