The Financial Conduct Authority (FCA) today provided insurers with guidance on what they need to do to assess the value of their products in the light of the coronavirus pandemic.
The FCA said firms should review products where benefits cannot be provided – such as boiler services due to lockdown measures – or where there has been a “fundamental change in risk” and products are now providing little or no use to customers – such as public liability insurance for closed businesses.
The regulator said firms should review their products and decided on any actions within six months.
Examples of changes given by the FCA include changing how benefits are delivered, refunding some premiums or suspending monthly payments for a certain period of time.
Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “Customers should expect value from the insurance products that they buy, but the exceptional circumstances of coronavirus may have materially reduced the value they are getting.
“Today’s guidance is designed to protect consumers by directing insurance firms to review the products they offer to ensure they provide appropriate value and take action where there has been a fundamental change in risk or where certain benefits can no longer be provided.
“Firms may choose to go further than this guidance, and we recognise that some firms have already taken steps to support customers, which we welcome.”
Simon Morris a financial services partner at law firm CMS said: “This guidance shows the FCA’s product governance policy in action and emphasises the FCA’s evolving role as a product value policeman.
“While termed ‘guidance’, this document goes a great deal further than a helpful steer. Read alongside the FCA’s other current material, it is clear that firms which fail to react positively will be subject to supervisory scrutiny, with a particular focus on the senior managers with responsibility for product design and distribution.”
Mark Turner, managing director at financial consultancy Duff & Phelps, said: “Firms cannot rely on customers identifying inappropriate cover themselves. The FCA gives the example of comprehensive car insurance for a car that cannot currently be used. But also, there may be cases where customers are underinsured, such as those with homes that might be vacant for long periods of time.
“For the insurance sector, consumers face potential harm from payment terms on policies, as well as the long-term risk of becoming uninsured and suffering losses as a result of not being able to keep up with their policy premiums. It’s critical that firms assess a customer’s risk of financial distress in a dynamic way – customers that were not even on the radar of vulnerability two months ago may now be exposed to serious financial difficulty.”