FCA: Insurance firms are failing to give customers the best product and service

Michael Lloyd

April 10, 2019

The Financial Conduct Authority (FCA) has warned general insurance (GI) firms about manufacturing, sales and distribution approaches that can lead to customers purchasing inappropriate products, paying excessive prices or receiving poor service. 

The FCA has highlighted it’s essential that people can access high quality, good value insurance products and warned it will intervene with both firms and senior managers where it sees them failing to give their customers value. It found many firms lack focus on good customer outcomes and need to address this urgently.

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.”

The report highlighted how the remuneration of all the parties in the distribution chain can result in customers paying significantly higher prices than the production and delivery costs of the products they are buying.

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

The FCA has written to the chief executives of all authorised GI firms to share these findings and its expectations.

Geoff Hall, chairman of Berkeley Alexander, added: “There’s nothing in the report that surprises me, it’s reiterating their findings and I absolutely agree with everything they’re looking to achieve. It’s about transparency, fairness and doing the right thing.

“The point about talking about the customer value for the product is key because that emphasises what we’ve always said about the choice of the product. There are a number of providers with a narrow set of products. They might offer a great Defaqto product but not everyone may want that.

“The customer is king and you have to do right thing for them and that means matching the policy to their demands and needs and what they’re prepared to pay for that. And you have to provide great service on the front end and at renewal.

“I also worry there are several providers going down this single, one or two questions route because it makes it easy for the adviser. It has to be easy for them, they’re busy people but most importantly it has to be right for the customer.”

“Advisers need a simple process to fit in their busy day but you have to ask a certain number of questions to make sure it’s right for clients.”

Both Berkeley Alexander and Source insurance have platforms where brokers can input information and find tailor made solutions for clients.

Kevin Paterson, managing director at Source Insurance, added: “The FCA are making the point one product can’t suit everybody so choice has to be a solution which is something we strive to achieve with that platform.”

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