YOUR COMPLIANCE MATTERS – GI Value Measures (data July to December 2021)  

YOUR COMPLIANCE MATTERS – GI Value Measures (data July to December 2021)

 

Relevance:                   All Firms.

 

Action required:           Be aware of how data can be used.

 

 

Background:

Back in March 2014, the FCA began its probe into the value of General Insurance products, when it published the provisional findings of its first market study General insurance add-ons: Provisional findings of market study and proposed remedy report.1 1.5

 

That report,

·          explained why they were concerned about general insurance add-ons and what prompted them to consider the issue through a market study;

·          set out their approach and methodology;

·          presented their assessment of how the add-on mechanism influences consumer behaviour and how effective competition is for add-on insurance products

 

Since then, the FCA has continued to investigate this area more closely.

·          In 2015, following the market study, they published a discussion paper (DP15/4) exploring options for the publication of ‘value measures’.

·          In 2016, following feedback to the discussion paper, they launched a pilot of the publication of GI value measures data for buildings and contents, home emergency, personal accident and key cover insurance.

·          In 2018, they assessed the impact of the pilot and found it had a positive impact, improved transparency and awareness of different indicators of product value.

·          In October 2018, following the implementation of the Insurance Distribution Directive (IDD), they introduced product governance rules. These rules required firms to have processes in place to ensure that insurance products are appropriately designed, marketed, distributed and monitored.

·          In January 2019, they published Consultation Paper CP19/8: General Insurance Value Measures reporting, setting out proposals for the report and publication of value measures data across firms and GI products.

·          In November 2019, they published guidance for insurance manufacturers and distributors, clarifying their expectation that firms should consider the value that the product and distribution arrangements offer to customers.

·          In September/December 2020, in the Consultation Paper CP20/19: General insurance pricing practices, the FCA proposed a package of measures to improve competition and ensure firms offer fair value products in the future.

o    Pricing remedy: rules to change the way firms price home and motor insurance.

o    Product governance: changes to the existing product governance rules in our PROD sourcebook to ensure firms have processes in place to deliver products that offer fair value to customers.

o    Auto-renewal: firms to offer a range of accessible and easy options for consumers who want to cancel auto-renewal on their contract.

o    Reporting requirements: new reporting requirements to help ongoing supervision of the home and motor insurance markets.

·          Also in September 2020, the FCA issued its Policy Statement and Final Rules; General Insurance value measures reporting and publication, PS20/9.

o  The rules came into force on 01 January 2021 (amendments to PROD) and 01 July 2021 (amendments to Glossary and SUP);

o  First report for 6-month period covering 01 July to 31 December 2021, due for submission by 28 February 2022.

 

Which brings us to the latest publication from the FCA, General Insurance Value Measures Data (July to December 2021), issued 25/11/2022.

 

Here the FCA states:

 

“The value of insurance products for consumers continues to be an important area for us given cost of living increases and is a central feature of the incoming Consumer Duty. Firms must ensure that their products offer fair value to consumers.

 

This is a first set of data and we will continue to analyse trends over time. General insurance is an important product for consumers and by and large provides essential protection to consumers at fair value.

 

However, we are concerned about how the current picture presented in the data appears to compare with firms stating that virtually all products are providing fair value. We will be closely analysing the next data set due in February 2023, as well as testing the robustness of firms’ product oversight and governance arrangements, including fair value assessments.”

 

We do not intend to closely analyse the data provided in the FCA report, we will leave this to client firms to explore the product areas that most concern their own activities.

 

There are certain areas of interest to all clients, as follows:

 

1)     What the data shows:

·      Users of the data can filter the firm specific information by product to explore the distribution of value measures across different firms.

 

2)     FCA expectations:

·      Firms must ensure that their products offer fair value to consumers and take the value measures data into account when assessing fair value.

·      Firms must assess the value of their products, considering, among other things, the nature of the product, including the benefits that will be provided, their quality, and any limitations (for example in the scope of cover, exclusions, excesses, or other features).

·      Product Governance requirements for General Insurance products stipulate that firms should now have carried out value assessments of their products.

o  Firms should refer to FCA rules and guidance in Chapter 4 of the Product Governance (PROD) sourcebook.

·      We will ask some of the firms offering potentially lower value products to consumers, according to the value measures data, to explain the value of these products and the outcome of the firms’ fair value assessments.

 

3)     Consumer Duty:

• In July 2022, the Consumer Duty was launched, with rules coming into force in July 2023 for products that are open for sale or renewal.
• The Duty includes requirements around product governance and price and value, and complying with, PROD 4, should meet the products and services outcome and the price and value outcome of the Duty.
• Firms must act to deliver good outcomes for their consumers, as they

o  act in good faith,

o  avoid causing foreseeable harm,

o  enable and support consumers to pursue their financial objectives

 

4)     Publishing data:

·      Publish the GI value measures data was a commitment in Policy Statement PS20/9.

·      It aims to create incentives for firms to compete on broader elements of product value than price alone, and to improve the value of the products and services they offer consumers.

 

5)     What the data includes:

• There is firm specific information on claims frequencies, claims acceptance rates, average claims pay-outs and claims complaints as a proportion of claims, for a wide range of retail GI products.

 

The Report can be found on the FCA website using the following link:

General insurance value measures data - July to December 2021 | FCA

 

Clearly, there is a link between the requirements under PROD and the obligations under the Consumer Duty. Firms are urged to ensure that they have sufficient activity planned and evidence obtained to demonstrate that they are in line with the FCA’s expectations.

 

 

If you need any further guidance, please call us and we will be happy to provide more help.