Insurance and pressure on the small-inde label

Finalised FCA guidance on GI distribution chain 

On 19 November 2019, the FCA published its finalised guidance on the general insurance (GI) distribution chain (FG19/5). https://www.fca.org.uk/publication/finalised-guidance/fg19-05.pdf

The guidance, addressed to GI firms and providers, gives further clarity on what the FCA expect firms to do in the GI and pure protection sector. 

In particular, it explains how firms should consider the value that the product and distribution arrangements present to the customer.

All parties are now responsible for everything, and that is what is driving the paranoia of due diligence reports, intensive applications for agencies that involve in depth compliance reports and interviews, and it is driving a more centralised model where product providers own the distribution. 

FCA say:

Firms must put in place a product approval process, covering product design and review  

As part of this process, we expect manufacturers to consider the value that the product presents for its intended customers (the target market) and how the distribution chain

affects overall value. 

" Manufacturers have an obligation to ensure the distribution strategy is consistent with the identified target market."

That means that the providers must create a biz plan and they pretty much need your name on it.  

In business we all try and take advantage of change, and the implications here are clear. 

The small-inde label is under pressure as never before, and the tide is moving towards a tie to a selected range of providers.

There are key examples of situations which are directly relevant to all financial services

FCA say where firms should be particularly vigilant are:

• A distributor receiving a level of remuneration which bears no reasonable relationship to their costs or workload to distribute the product. This imbalance between remuneration and cost/effort could incentivise the firm to sell a product which does not provide value to the customer.
• A distributor receiving significant remuneration, but where their involvement in the distribution chain provides little or no benefit beyond that which the customer would receive from the product anyway. This imbalance could indicate that the customer is being charged for a service that provides little benefit.
• A distributor receiving remuneration which incentivises them to propose or recommend a product which either does not meet the customer’s needs, or does not meet them as well as another product would do.