General Insurance Value Measures – a worrying Consultation from FCA
On 30 January FCA published a Consultation Paper on General Insurance Value Measures Reporting (CP19/8).
This is an incredibly important Consultation – which has huge implications for firms across the GI sector.
In this commentary I will focus on the strategic implications which CP19/8 raises – but I will alert you to the more technical and operational issues so that you can focus on these, to see how they may affect your particular business.
From small acorns, great oaks grow. In the case of the GI Value Measures saga:-
- we started with the FCA Market Study into the Add-on Insurance market (an investigation undertaken under FCA’s competition objective);
- that recommended a pilot project to assess whether the publication, on the FCA website, of various “value measures” applied to a limited range of add-on products might assist in delivering a more competitive market for add-on products more generally;
- FCA was very clear indeed, when it embarked on its pilot project, that its objective was to have a resource for firms to access – so that they could review the performance of their products (as assessed by the various measures) against the performance of other providers’ products. FCA was clear that it would not see this resource as suitable for consumer use, as many of the factors affecting the data would not be sufficiently understood by consumers;
- FCA reported on the pilot project over the last two years (and has just published the data for year three) and whilst it has, in this reporting, claimed that the pilot has delivered on its objectives, much of the evidence for this is shaky, to say the least.
From this background FCA is now consulting on proposals which are to apply (more or less unchanged) the requirements of the pilot project to, FCA says, “all GI insurance” – although I cannot find STIP in the list.
In any event, it is a heck of a leap from a remedy arising from a comprehensive Market Study focused on (and gaining evidence only from) add-on insurance to what FCA is now proposing.
FCA say that it proposes to extend the scope of its value measure reporting to “all GI products” because of evidence which it says it has gathered related to mobile phone insurance, motor insurance add-ons and isolated incidents – such as those affecting Express Gifts. It may be that FCA’s unpublished work on value in distribution chains has uncovered a hornets’ nest – but we don’t know this. Let’s be clear, FCA are moving to this CP19/8 Consultation without any (published) empirical evidence of the issue for which they are seeking a remedy.
What is more FCA are opening up the scope of what it is proposing, beyond the function of reporting value data to it. FCA indicate that:-
- quite contrary to its clear position on add-on insurance value measures, it sees the information which will be published as a result of reporting as valuable to both press and consumers directly (see the diagram on page 6 of CP19/8); and
- it will create a new, and crucially important, link between the publication of value measures and the actions which it will expect firms to take, in the light of the information which is published, when meeting their obligations under Chapter 4 of the Product Intervention and Product Governance Sourcebook (PROD).
By these means FCA will create a two pronged attack on the “value” of your products. The welcoming in of press and consumer use will apply an external pressure whilst the PROD measures will place huge internal pressures on your firm.
The new PROD requirements, which will apply to “value measures products”, will be inserted via a proposed new PROD 4.5 headed:-
“Additional expectations for manufactures and distributors in relation to value measures data”
In essence, the requirements will be that, in addition to all other product oversight and governance, firms which manufacture value measures products will be required to consider (amongst other things):-
- the firm’s reasonable assessment of the value expectations of customers in the target market;
- the value measures information, within a reasonable period of its publication; and
- any particular features of the product or the terms and conditions that may give rise to concerns about poor value;
and then do whatever is necessary to correct any aspects of their product which “do not offer sufficiently good value” (my emphasis).
If distributors identify any aspects of a product that may mean the product does not offer “sufficiently good value” they must take appropriate action to mitigate the situation and report the position to the manufacturer.
I need hardly emphasise how far we will have travelled from a free market in insurance in the UK to something a great deal more potentially sinister for your business and its viability – as I would estimate the outcome of these proposals is a regulatorily required dive to the bottom.
I will leave firms to look at the actual value measures and the proposals for reporting – which will be highly firm specific in their impact. For this you need the link to CP19/08 (on which Consultation closes on 30 April):-
If you require any more information regarding these issues then please contact Malcolm via malcolm@paginator.co.uk
