FCA compliance has always been a vitally important part of doing business in the insurance industry.
However, at a time of prolonged disruption and financial distress for so many businesses, compliance isn’t always top of mind – potentially causing problems as the FCA continues to tighten the industry’s regulatory regime.
For our latest broker webinar, we invited regulation and compliance expert Branko Bjelobaba to walk through some of the most pressing industry challenges being tackled by the FCA and consider the consequences for our brokers.
Branko began by explaining that, despite the pandemic, the FCA has been pressing forward on several issues, from how brokers sell to and advise clients to how they handle their finances.
“The FCA is hell-bent on ensuring the financial resilience of the broking sector during these difficult times,” he said. “In particular, there’s concern that too many customers are still overpaying for their insurance, and we are due some imminent new rules on both pricing and product governance.”
Firstly, from September 2021, there will be changes to the existing product governance rules to ensure firms have processes to deliver products that offer fair value to customers.
Secondly, in December 2021, the FCA is proposing a change in the way firms price home and motor insurance. When a firm offers a renewal price to a customer, the renewal offer price can no longer be greater than the equivalent new business price that the firm would provide to a new customer.
Branko noted that the draft rules are eagerly awaited following recent consultation eliciting a wide range of responses.
“The FCA always talks to interested parties – customers, insurers, brokers – as well as looking at the harm being done, examining the complaints submitted to the ombudsman. The huge response to the recent pricing paper shows that they are prepared to listen to the industry.”
Keeping tabs on your own conduct
Another prominent topic was the issue of broker conduct. Branko flagged the FCA’s Senior Managers and Certification Regime, which makes all brokerage staff personally accountable to the FCA. He noted that while brokers should have trained their teams on the five core rules of SMCR (the deadline for doing so was March 31st, 2021), some senior managers may have overlooked the requirement to assess their own personal competence within this regime.
According to Branko, “For directors and senior managers, you need to consider not just your team’s competence, but do you keep yourself up-to-date and how you assess your own competence. For example, do you do the required 15 hours of Continuing Professional Development per annum, or 35 hours if you’re CII-qualified? That’s a minimum of more than one hour every month, and despite Covid, this requirement hasn’t been waived. Many insurers provide relevant modules you can take, so try and lap up every opportunity.”
While the FCA doesn’t mandate a minimum qualification for staff, Branko also highlighted that regulators in the Republic of Ireland have higher competency standards, an essential consideration for any brokers setting up an Irish base to improve access to EU markets.
How has Covid-19 changed the FCA’s approach?
Next up, the webinar examined the FCA’s ongoing Covid-19 impact survey, now shortly onto its fourth edition, with Branko running through the questions brokers must respond to regarding their financial resilience – from their income expectations, extensions with creditors and to the level of client money they hold.
In particular, Branko noted that the survey doesn’t pull any punches when it comes to sensitive questions about longer-term business expectations.
“This is the first time the FCA has done some meaningful analysis of what really is going on in the general insurance sector during times of stress,” said Branko. “There are new rules on the orderly wind-down of businesses, and all brokers must have a plan for this eventuality. It’s the first time I’ve seen this type of regulation, which has been introduced in part due to concerns that struggling brokers might try to access client or insurer money inappropriately.”
Are you offering advice or not?
According to Branko, perhaps the single most important FCA rule is the stipulation that a firm must act honestly, fairly and professionally in accordance with the best interests of its customer.
Since this rule was introduced in October 2018, the importance of professional advice has never been so important.
“When it comes to sales, every broker has to take on board each customer’s information and match it against suitable products. Providing choice isn’t the same as offering advice, but as soon as you start to narrow down the options, the lines begin to blur,” argued Branko. “My view is that as a broker, you’re supposed to be presenting the most suitable solution for each customer’s insurance needs, and surely that means giving them some form of advice. I don’t understand why a professional insurance broker would not want to do that.”
Even if brokers offer non-advised sales, the FCA still requires them to provide genuine choice, avoid putting up products that are inappropriate to the customer, and repeat the activity on an annual basis.
“If you’re claiming to be an independent brokerage with wide market access and it turns out 90% of custom goes to your own in-house insurer, the FCA will see that as dishonest,” added Branko. “Just be open and transparent when it comes to any conflicts you may have, and you’ll avoid problems further down the line.
