Briefing: FCA comes out swinging for insurance outliers

By acting editor Yiannis Kotoulas

Well, the FCA did warn us that it was going to become more assertive…

Even before the implementation of its flagship Consumer Duty piece of regulation at the end of July this year, the regulator had made clear that it would be bringing the hammer down on firms who did not comply with its rules.

And this week (20 September 2023), after a period of information gathering, it called on insurers to take action after its data revealed that guaranteed asset protection (Gap) products may be failing to provide fair value.

The regulator’s data showed that across gap insurance products – which act as an add-on to motor insurance policies and cover the difference between a vehicle’s purchase price and its current market value – only 6% of the amount customers paid in premiums was paid out as claims.

It added that it had seen cases of some firms paying out up to 70% of the value of Gap insurance premiums in commissions to parties in the distribution chain, such as motor dealerships.

Many in the market had predicted that Gap insurance products may be first on the chopping block when it came to regulatory enforcement of the Consumer Duty – and those predictions have rung true.

The FCA has now issued an ultimatum to the manufacturers of Gap insurance products by giving them three months to take “immediate action” to prove customers are getting a fair deal, or face enforcement action.

More to come

While Gap insurance products are first in the firing line, the FCA is sticking to its guns about becoming a more assertive regulator.

Its ultimatum has been delivered to a specific product line’s manufacturers, but it doesn’t take a rocket scientist to figure out what the authority is doing here.

The message is clear – insurers in any line that do not provide fair value to customers will incur the FCA’s wrath.

Indeed, the regulator’s director of insurance Matt Brewis added: “This is an early signal of the work we’ll be doing under the Consumer Duty.

“If firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.”

On the same day as the FCA issued its ultimatum, it also published a letter detailing its insurance market priorities for 2023-2025.

In that letter, it explained that a “significant part” of its work over the coming two years would be to test firms against its requirements.

It added: “We will also continue to use data to identify outliers and, where firms are not meeting our rules and expectations, we will take action.”

Whether or not the industry believed the FCA when it said it was taking steps to become more assertive, the writing now seems to be on the wall.

From an organisation traditionally conceived of as a bit of a soft touch, these new moves to put the foot down on fair value may seem surprising.

However, for all of that, we can’t say we weren’t warned.

The majority of the insurance market operates with its customers’ best interests at heart, but outlier firms are now very much in the crosshairs.