Value Measures – and a whole lot more!

In September the FCA published its Policy Statement (PS20/9) on General Insurance Value Measures Reporting and Publication, see:-

https://www.fca.org.uk/publication/policy/ps20-9.pdf 

I will comment, below, specifically on this development, but the position is complicated by the fact the FCA has also published a Consultation Paper (CP20/19) on Handbook changes it proposes to make in the light of its General insurance Pricing Practices Market Study, see:-

www.fca.org.uk/publication/consultation/cp20-19.pdf 

Whilst the General insurance Pricing Practices Market Study was specifically related to pricing for Home and Motor markets (and particularly to the issue of prices for loyal customers), the Handbook changes which are proposed in CP20/19 extend to a massive additional content to be inserted into the Product Intervention and Product Governance Sourcebook (PROD).  

This content will apply to all general insurance (and pure protection) products and will (in my initial view) extend your obligations,  related to the “value” of products, way beyond the current (already challenging) levels of expectation – even as those levels will, themselves, be further increased as a result of the implementation of PS20/9.

Initial attention will be grabbed by the decision, in PS20/9, to extend Value Measures reporting and publication to (nearly) all GI. However, the “meat” of those requirements, so far as the FCA has always been concerned, would be the ability to link the published value data to become the specific subject of PROD requirements, via the (now confirmed) creation of the new PROD 4.5 entitled “Additional Expectations for Manufacturers and Distributors in Relation to Value Measures Data”.

You can now see why, if PROD is then to be further expanded and strengthened under the proposals in CP20/19, then the collection and publication of value measures data (tiresome as it will be) becomes just one (relatively) small piece in a whopping big value assessment jigsaw puzzle which the FCA intends to complete over the next two years.

Remember that this jigsaw puzzle already has many, many additional pieces in place by virtue of existing requirements regarding value in distribution chains.

In essence – whilst Value Measures reporting, and publication is the short term story (see below) – the big story is that Chapter 4 of PROD will become the beating heart fuelling the FCA’s ability to supervise and drive ever increasing “value” in GI products.

With all that (hopefully) clarified, I can turn back to a specific first response to PS20/9.

The headline news is that the FCA is to proceed to extend Value Measures reporting and publication to (nearly) all GI.  The FCA Handbook Instrument which will effect these changes will come into force on 1 July 2021, with the exception of Annex C (which contains the new PROD 4.5), which will come into force on 1 January 2021.

For the purposes of the product governance rules, during the transitional period between 1 January 2021 and 1 July 2021, SUP 16.27R (which contains the Value Measures reporting and publication requirements) will be deemed to take effect, to enable those product governance rules which refer to them, to operate. This “deemed” effect is pretty technical, and will not affect reporting requirements.

The first Value Measures Report, for data between 1 July 2021 and 31 December 2021, will be due for submission on 28 February 2022, so firms will need to capture and report the value measures data from July 2021 onwards.

The FCA has not strayed very far from the proposals it made for the extension of value measures in CP19/8 – but there are changes, and there are (in my view more significantly) changes in tone, justification and expectation from the FCA which you should note and prepare for.

There are some changes in the scope of products covered from those proposed in CP19/8 (notably alloy wheel insurance and vehicle cosmetic insurance being added and the removal (at least for now) of private medical insurance).

Of more significance is the decision that:-

• the requirement for firms to report data for different distribution arrangements separately be replaced with a requirement for firms to report the names (but not the data) of the firms and/or brands which represent their largest 5 distribution arrangements; and
• to remove the requirement for firms to report the amount that the highest 5% of claims are above.

The FCA have also made “minor” changes to the metric and product definitions. That said, generally speaking, firms are being landed with very much what they will have expected from the Consultation. This allows me to conclude with a word about the way that the FCA has further changed its tone, justifications and expectations regarding the entire concept of collecting and publishing value measures.

You may recall that, when Value Measure data collection and publication was first mooted (as a result of concerns arising from the very specific add-on market scenarios) the FCA was adamant that its proposals were a competition law response – and one aimed simply at educating firms as to the information they needed in order to be able to compete more effectively against each other. Indeed, the FCA was clear that the published information would be unsuitable for press or consumer consumption as (without sufficient knowledge as to its defects and limitations) the data could easily be misunderstood. 

When you read PS20/9 you will find that this limitation in data quality is freely admitted. The problem is that it is then swept away (as you might an irritating fly) with, not only:-

• an overriding justification that the data will educate the FCA, and allow the FCA to engage in more effective supervision over “value” (which I cannot deny, if FCA actually lets itself be educated); but 
• it is then pretty unforgivable for the chart on page 6 of PS 20/9 to contain the “outcome”, which the FCA says that it is seeking to obtain, described as follows:-

• • • Media and consumer groups become directly aware of the publication of value data;
    • Media and consumer groups publish data and information commenting on the performance of firms and products; and
    • Some consumers use this information to enhance their own understanding of measures of value for GI products and use this enhanced knowledge to shop around more.
      

There is either some intellectual deficiency at the FCA – or some blatant disregard for its own logic in favour of the “consumer at all costs” approach to regulation. This is made worse (but maybe reassuring for you) that the FCA, elsewhere, admits that it actually does not think that consumers are (at all) or the press (very much) interested in ploughing through value measures data on its website!