In 2021, FCA introduced rules requiring insurers to ensure their products provide fair value, which included submitting regular Value Measures Data to FCA. The aim of publishing this data was to create incentives for firms to compete on broader elements of product value rather than price and to improve the value of the products and services they offer consumers.
FCA has now published data for 2022, and has written to all insurance firms warning that more action must be taken to ensure good consumer outcomes in all areas as part of its wider portfolio supervision letters. The data is still showing that individual firms or products do not appear to be providing fair value. FCA is particularly concerned that the data has revealed potential concerns over GAP insurance products of this kind for customers. FCA data showed that for GAP insurance only 6% of the amount customers pay in premiums is paid out in claims while there are examples of some firms paying out over 70% of the value of insurance premiums in commission to parties such as motor dealerships.
The FCA has now given a three-month ultimatum to firms manufacturing GAP insurance products. They must take immediate action to prove customers are getting a fair deal, or it will intervene. FCA is concerned about:
- the extent and quality of implementation of PROD 4 and the Consumer Duty;
- whether firms can show their value assessments are in line with FCA rules; and
- deficiencies in product governance or a lack of MI, which are being revealed through supervision.
FCA also notes that while its immediate concerns focus on GAP insurance, they are potentially also related to wider issues.