The whole of the UK insurance market has been put on blast by the Financial Conduct Authority for perceived failings in their fair-value obligations to policyholders.
While no specific insurance firms were mentioned in a Product Oversight and Governance (PROD) thematic review, the FCA took aim at the gamut of general insurance and pure protection providers spanning the home, motor, pet, life-over-50 and travel markets.
“We’re disappointed to see many insurance firms are not fully meeting their product governance obligations,” said the FCA in the report published on Wednesday.
The regulator added: “Many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes.
“This means firms are not identifying instances where products are not delivering fair value for customers.
“We are very disappointed to see many firms, both manufacturers and distributors, failing to meet their regulatory obligations under PROD fully, despite our extensive previous work and the clear expectations we have set.”
A total of 22 general insurance and six pure protection manufacturers were investigated in the report, which the FCA said were “broadly representative of firms within the market”.
The FCA stated that many distribution arrangements were “too high level”, thus failing to provide adequate detail.
Target market statements often “lacked granularity”, added the FCA, continuing: “If firms do not adequately define the target market, there is a real risk that the product is then sold to customers outside this group who are unlikely to get fair value or achieve good outcomes from the product.”
Mind the GAP
Today’s PROD review follows an FCA review earlier this year into the sale of guaranteed asset protection (GAP) motor insurance with a number of firms due to concerns that products were not offering fair value.
GAP protection is designed to cover the difference between the current market value of a vehicle and its original purchase price in the event of damages or theft, as an insurer typically deducts depreciation when paying out to customers.
This caused shares in Orchard Funding Group, an AIM-listed provider of GAP insurance, to fall sharply.
Year to date, Orchard’s share price remains more than 32% lower.