Insurance Times explores what the FCA’s increased use of data analytics could mean for brokers and insurers as the regulator learns more about the firms it supervises

In August last year, the FCA updated its data strategy. In part, it attributed these revisions to advancements in technology and data analysis, as well as a need to keep pace with the “advanced techniques” that regulated firms were using within their own businesses.

The FCA said its data strategy sought to:

  • “Improve the way we use intelligence to better understand harm and manage it more swiftly.
  • “Improve our use of predictive analytics by spotting patterns and trends across firms, business models and sectors, ensuring we can identify harm and intervene quickly.
  • “Strengthen our analytics capabilities, to help our decision-making and help us set priorities.
  • “Share data more effectively and streamline work across the FCA to make us more efficient.
  • “Review historical data and assess where harm has occurred to learn lessons for the future.”

“Our vision is to harness the power of data and advanced analytics to support our mission, to make us more efficient and effective and to ultimately transform how we carry out financial regulation in the UK,” it added.

The regulator plans to action these data ambitions by deploying “new data management and analytical tools to give us control, flexibility and power in the way that we use our data”.

This ramped-up approach to data analysis has not gone unnoticed by the industry. In fact, Duncan Minty, a business ethics consultant, believes the FCA has been working towards this point for around five years, following its report on household insurance pricing back in December 2015 – its first brush with price walking.

“That showed to people inside the FCA that this is a way of looking at unfairness in a much more robust, evidence-based way. From that, the FCA invested in people, relationships and kit to just build and build [on] this,” he said.

He also cited the 2008 financial crash as another driver for why the FCA’s focus on data analysis went from a “nice idea to let’s invest in some very good people to set it up”.

He continued: “What [the FCA] realised is as the market used more data analytics themselves, they were in danger of getting further behind the market, so they would in all likelihood be brought up before the Treasury Committee and told ‘why didn’t you see this [coming]?’ They want to avoid that.

“What they’ve been doing is trying to move from being behind the market – as in 2008 – to being progressively more alongside the market, as things were happening.”

Under the microscope

But what does the FCA’s increased use of data analytics mean for brokers and insurers?

“They are already looking at the role of intermediaries in that work; they’ve evidenced it in information they’ve given to other regulatory organisations. Every regulated insurance firm has to understand that while they may be using data analytics to find out more about the customer, the regulator is using data analytics to find out more about the regulated firms,” Minty said.

“The FCA is using data analytics to enforce compliance with existing regulation and existing laws, so laws which are outside the Financial Markets Act that still apply to regulated firms.” This includes regulation around equality, for example.

Minty advised brokers to consider their decision-making that could lead to data production, as this may now make its way back to the regulator.

“Brokers have to understand that the FCA is using data analytics to get closer to them and that their decisions will become more transparent. A broker’s decision in terms of placement or distribution or whatever, will become more transparent,” he emphasised.

He believes this “will tackle, for the first time, some of the systemic issues around, say, conflicts of interest that the market has got comfortable with”.

Other plus points include being able to track market reactions to supervisory action due to continued data monitoring. For example, with price walking, “they’ll keep on monitoring this and they will know which insurers are walking the talk because the data will be tracking it”.

Tied with the Senior Managers and Certification Regime (SMCR), the FCA’s data analytics will also help improve accountability.

“The use of data analytics by the FCA allows them to substantiate cases of accountability in a much more thorough, confident and evidenced way,” Minty added. “The data is changing the nature of the relationship between the regulator and the regulated because the regulator can say ’this is the evidence to say you’ve got to stop doing something’.”

Two-way street

For Branko Bjelobaba, principal at general insurance FCA compliance consultancy Branko, his main bugbear with the FCA’s data collection to date has been the lack of meaningful data sharing with the industry.

Large firms submit data on a quarterly basis, while smaller firms provide information on a six-monthly basis – he feels that sharing the non-confidential information collated by the FCA would be a great tool to promote industry best practice, for example around culture and behaviour.

“What’s the point of getting data if you’re not prepared to share it?” he asked. “It should be shared for the right reasons in that commentators can build up a picture as to things that are in the pipeline that brokers need to get their head around. And also planning for the recovery, so once we are out of [the pandemic], what things we should be focusing on as we pull out.”

However, Bjelobaba conceded that the FCA’s publication of its recent financial resilience survey results was a step in the right direction.

“For me, the data was stark in terms of the sector, but this is exactly what data should be used to do. For the first time that I can recall, the FCA – they do all these surveys, they gather all this massive amount of information, but they do very little with it, so this is useful analysis,” he said.

“It enables the FCA to have a really good finger on the pulse.”


Following price walking, what other topics will the FCA evidence with data?

According to Duncan Minty, a business ethics consultant, the FCA will next concentrate on “fairness and vulnerability as key regulatory themes”.

“There’ll be a number of very significant reports to be produced over the next three years as the regulator gets more and more data to say: ‘well this is what’s happening’,” he added.

“They’re using [data analysis] in the background to deliver significant regulatory messages to the market. I think they will do something around vulnerability, discrimination and value.”

Will increased FCA data collection for analysis purposes impact firms’ resourcing?

For Branko Bjelobaba, principal at general insurance FCA compliance consultancy Branko, there are resourcing concerns around increased data collection requirements from the regulator.

He told Insurance Times: “One thing that’s always concerned me, especially since last March, is the amount of new stuff that the FCA is expecting firms to comply with. There’s too much to do and I don’t think the FCA is totally aware as to the impact.

“Where new stuff has a direct effect on consumer protection, don’t hold it back, there’s a reason to put it out. But they need to assess the impact of what they’re asking firms to do because if that then means they have to take their eye off other stuff that is more important, they then could almost be blamed.

“If the FCA’s requirements are somehow impacting on [firms’] ability to bring business in, they need to have a check on how meaningful is the stuff they’re asking firms to do?”