The regulator has published a report with findings of the issues identified in the insurance market, relating to information sharing between insurers and brokers and identifying target markets.
The FCA said insurers and brokers showed an improvement in governance and the oversight of how products were designed, managed, reviewed, and distributed, but there were still concerns about the pricing of products.
Matt Brewis, director of insurance at the FCA, said: “Insurers need to make sure their customers are getting fair value. Progress is being made, but we are still seeing too many examples of insurers and brokers lacking the right information, governance, or oversight to ensure their customers get consistently good outcomes.
“All insurance firms should take note of our findings and make improvements where appropriate.
“We’ll continue to take action where we see poor value so consumers can have confidence when buying insurance products.”
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Discrepancy between insurance risk and price
The FCA’s report covered the value of general insurance across the market between January and December 2023.
It found examples where the risk price of an insurance product only covered a “small proportion” of the total price, while distribution costs made up the largest share of the total price. It said firms were unable to show “why this was consistent with fair value”.
“The fair value assessments we saw failed to identify any unique or particular benefits customers would receive from paying such high distribution costs,” it added.
While the regulator recognised that distribution and administration costs might sometimes make up a higher proportion of the total price, particularly where costs are fixed, it said high distribution costs did not “necessarily equate to greater benefits for customers”.
Additionally, where a product has a higher average premium, which makes distribution and administration costs seem low, “firms must still demonstrate that these costs are consistent with providing fair value”.
The regulator warned insurers that if they were unable to show that products met FCA rules and provided fair value, it would take “appropriate regulatory action”.
‘Claims process a nightmare for customers’
Rocio Concha, Which?‘s director of policy and advocacy, says firms are also making the claims process too difficult for customers.
Concha said: “We’ve found some insurers have made the claims process a nightmare for consumers, from customers feeling harassed for difficult-to-obtain information about seriously ill family members to claimants living in mould-ridden houses for months as their claim dragged on.
“A number of car and home insurers continue to charge customers who can’t afford to pay for cover in one go annually excessive levels of interest, which could end up adding hundreds of pounds onto the final bill. The regulator has long acknowledged that this is a ‘tax on being poor’ and must urgently publish an action plan to set out how it will force firms that do this to stop it and give consumers fair value.”
She added: “Good standards of customer service didn’t begin with the Consumer Duty. Insurers have been bound to regulatory requirements for years. If the Consumer Duty is to be worth the paper it’s written on, the FCA must be prepared to take tough and decisive action against firms across the industry that fall short.”
This article is based on one that was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Insurers and brokers still not demonstrating fair value, FCA warns
