The Financial Conduct Authority (FCA) has been trying to tackle the mis-selling of insurance throughout all channels, bringing in measures to enforce greater transparency around products, but its latest report outlines that significant potential for customer harm remains
The UK Financial Conduct Authority (FCA) has issued a warning to the general insurance sector to ensure policies aren’t being mis-sold to customers by distribution partners.
A report from the regulator found that distributors selling supplementary vehicle insurance products, like guaranteed asset protection, were making an average of 60% commission on every policy.
Jonathan Davidson, FCA executive director of supervision for retail and authorisations, said: “Through our recent work we have continued to see poor manufacturing, sales and distribution approaches leading to sales of low value and inappropriate products, unfair treatment of claims and service issues.
“The widespread extent of these issues demonstrates a culture which pays insufficient regard to customer outcomes in some parts of the general insurance sector.
“We are going to carry out further supervisory work to make sure that firms meet their obligations and will not hesitate to use the full range of our regulatory powers.”
ABI defends insurance companies
Hugh Savill, director of regulation at the Association of British Insurers (ABI), spoke out in support of insurance providers, reassuring customers that most firms provide good value products.
He said: “The FCA’s report is based on findings in a limited range of products, which make up a tiny part of the large general insurance market.
“The majority of customers, buying direct, from a broker, or from a comparison website, should not be concerned with these findings.
“People continue to get good value, quality products from their insurers, which help them protect their homes, vehicles and livelihoods.
“There are clearly remaining problems in some distribution chains, and it is very important that these are addressed.”
Commission for insurance distributors raises consumer prices
Some general insurance distribution chains involve only one or two parties – such as direct insurers or an insurer and broker – but others can include multiple parties.
The FCA’s report highlights that high commission payments within the distribution chain can result in customers paying significantly higher prices than the production and delivery costs of the products they are buying.
It also raises concerns over the high risk of unsuitable sales, for example, where the distributor is selling insurance alongside a non-financial product, like a car, white goods or a holiday.
Insurers falling short
The EU introduced stricter regulatory measures under the Insurance Distribution Directive (IDD) last year, which came into effect on 1 October 2018.
Previous regulation under the Insurance Mediation Directive was thought to be lacking in rules around transparency about insurance products, with distributors having the ability to bundle non-financial products and supplementary cover together into one package.
The IDD made it a requirement for customers to have the choice to purchase insurance alongside products.
It also forced insurers to be more transparent about their pricing, including information about the production and delivery costs of financial products.
Despite these stricter rules, this latest FCA report has shown insurance companies are still falling short of the regulator’s expectations when it comes to monitoring and controlling those authorised to sell their products.
A 2016 report on the behaviour of appointed representatives – those authorised by insurers to distribute their products – revealed similar concerns, but this latest report outlines that significant potential for customer harm remains.