FCA CEO Nikhil Rathi set the tone of the Business Plan for the coming year stating that the FCA must continue to become a forward-looking, proactive regulator with emphasis on being more innovative, assertive, and adaptive. Demonstrating they intend to take assertive action in instances of misconduct, the FCA fined Lloyds Bank General Insurance Limited (LBGI) in July 2021, hitting the firm with a £90.7 million fine for causing consumer harm by failing to ensure communications with customers were clear, fair and not misleading.(1) In February 2020 88% of adults in the UK held at least one insurance product, (2) cementing the market as one of continued importance for the regulator. With the promise to undertake real-time intervention, insurance firms should consider how they can best focus on ensuring practices align with FCA expectations, confirming priorities for the regulator are fully considered.
Delivering fair value in a digital age
The Business Plan touched on a number of focus areas, but pertinent to insurers, is the priority to deliver fair value in a digital age. The principle of fair value for consumers is a primary concern of the FCA, as highlighted by the LBGI fine, and the regulator expects firms to deliver. The Plan specifically mentions general insurance pricing practices and touches on the result of the market study from May 2021 (3), noting that systems and controls and product governance measures in an effort to ensure fair value for consumers, come into effect in October 2021. Success under this priority enables consumers to have a selection of suitable products of fair value, driven by competition and innovation in the market. Vulnerable customers should also be able to access key services and products of fair value, ensuring firms are not exploiting vulnerable customers' circumstance. Firms should ensure that fair value for customers underpins all business decisions, and is considered in all facets of regulated activity.
Linked to fair value is the Consumer Duty, currently undergoing finalisation, which aims 'to set clearer and higher standards for firms' culture and conduct'. (4) The FCA is expecting firms to put customers at the centre of the business so that products and services meet the needs and interests of those who utilise them, communications about these facilitate informed consumer decisions, and products and services are priced at fair value. At its basis, this can be seen as an extension of the treating customers fairly (TCF) principle, whereby a firm must be able to demonstrate it has done everything it possibly can to help customers achieve a fair outcome. The FCA is expecting to propose new rules by the close of 2021, with finalisation of rules by July 2022. Insurers should be proactive and consider how to best integrate and evidence that the new consumer duty is being taken on board, to demonstrate to the FCA and customers that they understand the importance of putting consumers first using both a top-down and bottom-up approach.
Environmental, Social and Governance (ESG)
As the Government moves ESG concerns up the agenda, regulators mimic this prioritisation and the market follows. The FCA understands it must support an environment that enables and facilitates financial services firms in achieving their ESG initiatives. For example, the Business Plan mentioned the FCA's commitment to implementing recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) proposing to bring new rules in at 1 January 2022 for listed companies and other FCA regulated participants, following a consultation which will include the insurance sector. More broadly, firms will need to consider the strategy they take towards ESG, developing a narrative underpinned by the correct metrics across environmental, social, and governance concerns which are able to stand up against possible regulatory scrutiny. Outside of the fact that progressive action in these areas can drive the resilience of firms anyways, the FCA has indicated its intention to act as an agent of change by establishing rules, gathering market intelligence and fostering sustainability.
Insurers should consider what the 2021/22 Business Plan means for them, and ensure alignment of own regulatory priorities with the FCA as appropriate.
DWF is hosting a virtual talk titled FCA Business Plan & Priorities for the Insurance Sector on Wednesday 22 September 2021 from 12:00 – 13:00. We would be delighted for you to join us, or alternatively, reach out to for a discussion on your firms' reaction to, and consideration of, the Business Plan.
(2) PG 8 https://www.fca.org.uk/publication/business-plans/business-plan-2021-22.pdf
(4) Pg 31 https://www.fca.org.uk/publication/business-plans/business-plan-2021-22.pdf