TR19/2 is the culmination of two simultaneous but separate reviews:
GI distribution chains have become long and complex. And distribution chains are potentially subject to significant influence from parties that are not authorised firms, such as retailing groups whose main business is unregulated.
The key risk the FCA say is that the more people involved in the chain, the higher the price of the GI product, and the more complex the end result (including claims and complaint handling).
The FCA is concerned about these risks because of their potential to cause harm to customers, particularly personal lines and small and medium-sized entity (SME) customers. A lot of these issues came to light in the recent fine against Carphone Warehouse.
The FCA point out the obvious that needed to be stated: where multiple parties are involved, the risks of these harms occurring is significantly greater.
The FCA wants more focus on customer outcomes, including the value of the products and services their customers receive. The part that IFAC play in all this is helping you to show the value of your product. This means creating for you business plans, risk reward matrix and customer outcome statements.
Generally, FCA expects all GI firms to put customers at the heart of their business models and have appropriate regard for the value customers receive from the GI products they manufacture and distribute.
As indicated above, alongside TR19/2 the FCA has published a guidance consultation on the GI distribution chain (GC19/2).
The aim of the proposed guidance is to set out the FCA's view of how GI firms should consider value when complying with the requirements on the manufacture and distribution of insurance products. The key points are:
Alongside TR19/2 and GC19/2, the FCA has also published a Dear CEO letter sharing its findings and expectations with GI firms, and calling on them to act immediately to identify and mitigate any shortcomings.
This is a big moment for GI, and brings the market much closer to the tight regulation seen inside the investment world post credit crunch. And if that is anything to go by, this GI initiative is just the start of a very, very long journey that will impact all parties and force change.
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