The Financial Conduct Authority (FCA) has published a series of portfolio letters for the insurance sector, alongside the publication on General Insurance (GI) value measures on 20 September. This effectively sets the strategy that Matt Brewis, the FCA Director of Insurance, has set himself for the next 2 years. In the current FCA organisational structure, he oversees the regulation of all insurance sectors, including funeral plans, covering both policy and supervision. While the inner workings of the FCA may not seem of much interest, the evidence suggests increasingly purposeful supervision of the sector. Another key difference is that the portfolio letters no longer split between brokers and insurers – resulting in a more consistent approach in each of the insurance sub-sectors.
Overall, the messaging provides significant clarity and consistency. There are clear prompts about the focus areas that the FCA considers present a risk of harm, and what it expects from firms.
The sector strategy builds on the FCA strategic priorities as articulated most recently in the its business plan published in April 2023 – using the same language and key priorities.
Across the four sectors, including the funeral plan sector, the market-wide priorities are broadly the same:
- Putting consumers’ needs first and the Consumer Duty
- Strategy for positive change -– ESG, with an emphasis on governance and culture and diversity
- Minimising the risk of operational disruption – operational resilience and reliance on third parties
- Improving the oversight of Appointed Representatives
There are some nuances reflecting some of the high priority issues in different sectors (see table below).
|Sub-sector||Personal and commercial insurance||Wholesale insurance||Life insurance including protection products||Funeral plan|
|Market-wide priorities||1. Consumer Duty|
3. Operational resilience
2. Operational resilience
3. Consumer Duty
|1. Consumer Duty|
3. Operational resilience
|Portfolio-specific priorities||1. Price and value – distribution arrangements, add-ons, incl. GAP, high commissions, premium finance, longer tenure customers and discriminatory pricing;|
2. Customers in financial difficulty;
4. Access and differential customer outcomes; leaseholders;
5. ‘Essentials’ home and motor;
6. Diversity and non-financial misconduct
|1. Competitiveness of the UK;|
2. Diversity and non-financial misconduct;
3. Operational resilience and risk of sensitive risk data loss;
4. Cyber insurance;
5. PROD4 and high commission rates; claims handling;
6. Financial crime;
7. Prudential risks from debt servicing in wholesale intermediaries
|1. Price and value – transparency and closed books; annuity rates;|
2. Poor service – migrations, transformation and closed books;
3. Customer journeys incl. retirement;
4. Customers in financial difficulty;
5. Outsourcing oversight;
6. Protection products;
7. Sustainability-related investment and disclosures
|1. Consumer duty – fair value and closed books, disclosures and financial promotions;|
2. Support and complaints information;
3. Customers in financial difficulty;
4. AR networks and AR oversight;
5. ESG – poor governance;
6. Operational resilience – third parties and cyber;
7. Quality of regulatory reporting and AR reporting;
8. Unauthorised business
|Other||Climate change risks||1. Firm failures|
2. Trust solvency
3. Wind down plans
International competitiveness, cyber insurance and financial crime are key themes for the wholesale sector. Diversity and non-financial misconduct feature more specifically for wholesale and personal and commercial lines and closed books and annuities are themes for the life insurance sector. The focus on the Funeral Plan sector is marginally different but remains broadly aligned to the themes, though financial soundness features high compared to other sectors.
Overall, the letters show a highly disciplined market-wide strategy, with clear priorities that continue existing regulatory themes.
Another consistent message is that the regulator will use data and its range of regulatory tools to intervene assertively where they see issues. There is plenty of evidence in the market showing the regulator’s increased assertiveness so our advice to firms and their boards is to take heed of the messages in these letters, and prioritise their efforts accordingly.