SME is also included in the FCA’s changes on pricing and product value 

By Content Director Saxon East 

The devil is the in the detail. So many thought the FCA’s crackdown on pricing and product value was only for personal lines.

But the small print reveals that SME brokers must show fair value on products (see box for who is included).

This is a major change and it has been highlighted thanks to the work of Michael Sicsic, who used to work at the FCA but is now a regulatory consultant.

The following products, whether sold to retail or commercial customers, included in the proposed rules:

  • All general insurance policies. 
  • All products sold alongside them - such as premium finance.
  • All pure protection. 

Large risk and reinsurance are NOT included.

See page 32 of the FCA’s consultation for additional details.

To be classified as a large risk, the policyholder must exceed at least two of the below three amounts: 

1. Balance sheet total: €6.2m.

2. Net turnover: €12.8m.

3. Average number of employees during the financial year: 250.


So, why exactly is SME included in the proposed changes on pricing and product value?

According to Sicsic, who briefed Insurance Times, this builds on the FCA’s previous work - most importantly, its thematic reviews on distribution.

In recent years, the FCA has written reports on delegated authority and appointed representatives. 

Furthermore, a report two years ago found there was still widespread mistreatment of customers. 

The ‘fair value’ ethos brings together all these issues with a proposed solution. 

Tradesman example 

Those of you who have read my previous briefings will know that for some time I have warned that SME brokers face deeper regulatory scrutiny.

Tradesman was highlighted by the FCA as a good example of a problem area in the distribution chain. 

With tradesman, brokers are getting between 25% and 35% commission, plus charging additional administration fees, according to an FCA probe. 

Furthermore, the regulator found that sometimes, two different firms were charging administration fees.

This is exactly the type of distribution chain activity the FCA is concerned about. 

Impact on SME

On certain products, the FCA’s proposals mean all parties in the chain - insurers and distributors - will know exactly who takes what.

There must be justification of value shown on the end price charged to customer. 

That may require benchmarking data and benefits listed against the price.

Insurance firms should have the groundwork laid on fair value by September in SME products, in preparation for full implementation.

Next week, I will be looking at the products which are most likely to face intense regulatory scrutiny from this change.