The Financial Conduct Authority has launched an intervention against five general insurance networks for “significant shortcomings” in control and oversight of their AR firms – banning two from sales activities.
The regulator, which scrutinized 15 AR principals, said over half failed to demonstrate that they could effectively risk manage and control the activities of their AR firms.
The FCA has prevented all five firms from taking on new ARs and is launching a review to assess systems, controls and whether customers have been mis-sold to, and is looking at whether customers need to be redressed.
The regulator said it has found examples of potential-mis-selling with customers buying products they don’t need and may not be eligable to claim under, while some customers were not provided with enough information to make an informed decision.
Jonathan Davidson, director of supervision, retail and authorisations, at the FCA said: “While some principals did have a good understanding of their appointed representatives’ activities and their obligations as principal firms, we found widespread examples of poor practices across the sector.
“In many cases firms were simply failing to understand and manage the risks arising from their appointed representatives’ activities.
“General insurance is a large and important sector and we are concerned about the potential for customer detriment arising from the lack of oversight of appointed representatives.
“All principal firms need to consider these findings and look again at their practices.”
The FCA has written to the chief executives of principal firms to remind them of its expectations and set out what they need to do next.
At one AR network the FCA said there was “significant evidence” of mis-selling leading to actual customer detriment.
Kevin Paterson, managing director of Source Insurance, said: “Clearly the FCA now has general insurance in its sights and is taking the whole sector very seriously – for years it’s been treated as a poor relation or even an afterthought.
“While this particular criticism has been aimed at the insurance broking sector insurance advisers are not immune – the FCA is making recommendations which they expect everybody to adopt.
“I think this action is coming on the back of the recent concerns raised by the ombudsman in relation to advisers omitting to give advice to their clients.
“The message was that it needs to be documented if the client hasn’t taken your advice.
“It’s the same principal historically we’ve had with life and critical illness cover.
“GI has to be more prominent and comprehensive in the advice process which is even more reason to partner with the right firm like us, although other firms are available!”
Jason Berry, director of sales at Uinsure, wasn’t surprised the regulator has found fault with how ARs are approaching GI.
He said: “It’s an issue we’ve faced in the mortgage industry for years. One of the biggest problems facing the sector is apathy, brokers simply don’t care enough about GI to give it the time it deserves to the detriment of themselves and their clients.
“Networks have a responsibility to ensure their ARs are acting appropriately and that means not leaving their clients unprotected, or inadequately protected, and vulnerable.
“It’s a simple case of protect or neglect: If you’re not selling protection products to every client, you’re effectively neglecting them.
“Yes, sometimes clients will say they’re going to source protection elsewhere but often, we find, the broker has done very little to convince them otherwise.
“As with many industry movements networks can lead the way on this issue if they make sure their brokers understand GI, are aware of their regulatory requirements and provide robust infrastructure which supports the delivery of best advice.”