FCA has published its finalised guidance for general insurance product manufacturers and distributors on the distribution chain. The guidance follows the findings from FCA’s thematic review in 2017 and 2018, and its consultation earlier this year. The finalised guidance:
- applies to all firms that effect/carry out contracts of insurance, are involved in distribution activities or are Lloyd’s managing agents;
- applies to all general insurance and pure protection products and business;
- requires manufacturers to put in place a product approval process that, among other things, considers the value the product represents for the intended customers and can evidence the conclusions the assessment reaches – if firms do not meet the requirements of the relevant rules, the product is likely to be poor value;
- requires manufacturers to use the full suite of data available to them to assess the value their products offer to customers – including looking at risk price, premium price and commissions;
- explains why manufacturers should consider all parties in the distribution chain when ensuring the distribution strategy is consistent with the intended target market – and this will mean properly supervising delegates;
- explains the importance of MI in product review;
- requires distributors to consider the impact of their strategy on the overall value of the product to the customer and to monitor this on an ongoing basis;
- reminds distributors of their duty to ensure their remuneration, whatever form it takes, does not create a conflict of interest; and
- expects distributors to be well places to spot initial signs of potential customer harm and to tell the manufacturer and, if necessary, change the way in which they distribute the product.
The guidance also contains an annex mapping the expectations to relevant rules