The FCA’s product governance rules come into force on 1 October and some insurance firms are not ready
Global network for professional firms, KPMG has warned that there could be an “uneven playing field” in insurance ahead of the introduction of the FCA’s product governance rules on 1 October.
This is because some firms are more stringent than others in their definition of “good value,” according to KPMG UK’s director, James Hillon.
These product governance remedies aim to ensure that insurance firms are delivering “fair value” to customers in home and motor.
Come Friday 1 October 2021, general insurance firms, intermediaries and trade bodies representing them will need to ensure they have implemented systems and controls, as well as having product governance frameworks up and running to assess whether insurance products deliver “fair value” for customers.
There is an additional 12-month period for appraising individual products.
Hillon said: “Insurance firms are just days away from a step change in how they demonstrate that their products offer customers good value. This first FCA deadline marks a significant milestone in the leap towards a more customer-centric industry.”
Starting point, not the finish line
The regulator initially split the pricing reforms across two deadlines – 1 October 2021 and January 2022 due to insurance industry concern around the four-month implementation period.
In addition to these rules, pricing model changes and auto-renewal remedies designed to prevent price walking practices and easier opting out methods at renewal must be in place by 1 January 2022, alongside the ability to adhere to additional reporting requirements.
On 25 August the FCA sent out a warning to insurance firms about the impending deadline for its product governance rules, following the publication of a review that suggested that some firms are not ready.
The review looked at how insurance firms designed, sold and reviewed their products to meet the customer’s needs.
It found that while some firms had made good progress in meeting the FCA’s existing rules and guidance, too many firms are not fully meeting the FCA’s standards.
The review found the following weaknesses:
- Insufficient focus on customers, outcomes, and product value, including when considering value in the context of Covid-19.
- Shortcomings in governance and oversight of products.
Sheldon Mills, executive director for supervision, policy and competition at the FCA, said: “These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.”
Hillon continued: “The fact the FCA felt it necessary to issue a warning signal to firms about their level of readiness indicates that some are in the middle of a sprint finish right now, however, the majority of firms we have come across are making sure and steady progress.
“But 1 October is the starting point and not the finish line. The bumps will come later as we potentially see firms interpret ‘good value’ in different ways.”
Rules concerning premium finance disclosure are also scheduled to come into force from the new year, recently switched from the 1 October deadline.
Hillon added: “This could become even more pronounced when the new rules, in relation to car and home insurance pricing, hit at the end of the year. This is something the FCA will be watching closely.”