FCA warns general insurance firms about providing value for customers

Concerns that some general insurance firms are failing to consider the value of the products and services they provide to customers have been raised by the City regulator.

The Financial Conduct Authority (FCA) is warning general insurance firms about approaches that can lead to customers purchasing inappropriate products, paying excessive prices or receiving poor service.

It warned firms that it “will not hesitate” to intervene with both firms and their senior managers where it sees a failure to have appropriate regard to the value customers ultimately receive.

The regulator has written to the chief executives of all authorised general insurance firms with its expectations.

The FCA said it is essential that consumers and businesses can access high quality, good value insurance products.

Its review focused on three elements of the general insurance sector – travel, business insurance and motor insurance.

But its message about the standards expected also applies more widely across the general insurance sector – which also provides products such as home, dental and pet insurance.

Jonathan Davidson, executive director of supervision – retail and authorisations, at the FCA said: “Through our recent work we have continued to see poor manufacturing, sales and distribution approaches leading to sales of low value and inappropriate products, unfair treatment of claims and service issues.

“The widespread extent of these issues demonstrates a culture which pays insufficient regard to customer outcomes in some parts of the general insurance sector.

“We are going to carry out further supervisory work to make sure that firms meet their obligations and will not hesitate to use the full range of our regulatory powers.”

Over 300 insurers and 5,000 intermediaries are operating in the UK general insurance marketplace.

The FCA said that while some general insurance distribution chains can involve just one or two parties – such as a direct insurer or an insurer and an insurance broker others can include multiple parties.

The remuneration of all the parties in the distribution chain can result in customers paying significantly higher prices.

In some distribution chains, there can also be a high risk of unsuitable sales, for example, where insurance is sold alongside a non-financial product like a car, white goods or a holiday, the regulator said.

The FCA also said customers may not receive the services they needed and experience poor outcomes, for example when making claims or complaints. This was most common where firms delegated authority to another party.

The main causes of potential harms to customers were firms not having a culture with enough focus on customers and poor oversight of products, the FCA said.

Hugh Savill, director of regulation at the Association of British Insurers (ABI), said: “The FCA’s report is based on findings in a limited range of products, which make up a tiny part of the large GI (general insurance) market.

“The majority of customers, buying direct, from a broker or from a comparison website, should not be concerned with these findings.

“People continue to get good value, quality products from their insurers, which help them protect their homes, vehicles and livelihoods.

“There are clearly remaining problems in some distribution chains, and it is very important that these are addressed.”