Members of the Compliance Forum met on Wednesday 22nd July 2015 and were joined by Joe Smith from FCA, who led the review on TR15/7. Joe was joined by Alison Walters and Olga Rakhamina who answered questions specifically about TR15/7.
FCA – THEMATIC REVIEW ON SME CLAIMS – TR15/6
In our June newsletter we published details of the FCA thematic review on SME claims.
Many of our members were unable to attend the meeting held at Canary Wharf on the 22nd May 2015. The FCA have confirmed that they recorded the briefing and members are now able find this on the FCA website ‘Related links’.
FCA THEMATIC REVIEW ON DELEGATED AUTHORITY & OUTSOURCING IN UK GI MARKET
Hot on the heels of the FCA’s thematic review of SME claims handling came their report on Delegated Authority and Outsourcing in the UK general insurance market. This was published on Tuesday 2nd June 2015. Members will recall that the MGAA was consulted in the FCA’s process of scoping out the thematic review, prior to taking their findings to the FCA board for approval. Again your association asked MGAA board members to provide assistance in meeting FCA prior to the commencing of this important piece of work.
Contemporaneous with the publication of the report, the FCA held a seminar, hosted by Simon Green - Head of General Insurance & Protection, where they discussed their findings along with the potential failings highlighted by the thematic review. The regulator’s conclusions were drawn from an analysis of around 120 delegated authority schemes, provided by 12 insurers. The FCA also reviewed the activities of 19 additional firms which held underwriting authority and/or claims handling authority.
Let’s remember that the FCA carried out this review as they “wanted to understand how firms approached outsourcing across the GI market place and how responsibilities flowing from such arrangements were managed.” It should also be remembered that the FCA focus was on customer outcomes, consequently the processes followed by the market were analysed in depth.
FCA findings included:
- Insurers do not always treat delegated arrangements as outsourcing and improvements are needed to due diligence and the way they manage such arrangements.
- In many cases, insufficient focus and consideration has been given to how the interests of customers might be impacted by outsourcing.
- Some intermediaries undertaking product design activities do not recognise the extent of their responsibilities as product providers.
- In many cases, there is insufficient oversight of the performance of products and delivery of services.
Whilst the report was mainly focused upon insurance products and services provided to retail and consumer customers, similar concerns were expressed by the FCA in relation to commercial (SME) customers.
The FCA also produced the schematic report which shows how their findings differed from their expectations.
On Thursday 4th June 2015, the Chairman of the MGAA’s Legal, Regulatory and Compliance Committee, together with its legal advisor and MD attended a meeting in Canary Wharf with Joseph Smith and other senior FCA personnel. The key message for the MGA insurance sector was that the FCA would again focus upon their “outcomes” principle. Therefore members should be taking proactive steps to assist their capacity providers in every way, to ensure that all elements of this review are being addressed.
Where an MGA is intrinsically involved in the policy design then they need to clearly establish who is responsible and for what. Moreover the MGA’s distribution channels may need to be reviewed to ensure that their chosen conduit to access the policyholder is competent to sell the product, and that this is capable of being evidenced.
The FCA have confirmed that their on-going supervisory work with MGAs will focus on the questions and issues highlighted in this report, as well as to verify that firms have reviewed their activities in the context of these findings and have taken steps to address any failings identified.
It is also recommended that MGAs familiarise themselves with the guidance given by FCA in RPPD [Responsibilities for providers and distributors for the fair treatment of customers].
The FCA have published the findings of their thematic review on delegated authorities and outsourcing - a recording of the seminar is now available here.
FCA DISCUSSION PAPER DP15/4 - "GENERAL INSURANCE ADD-ONS MARKET STUDY - REMEDIES: VALUE MEASURES"
As many of you will be aware, the FCA has published a discussion paper DP15/4 following their review on “Add-ons” in 2013. This thematic review identified that the market was not working well for consumers and as such they proposed a number of options for the market to introduce. Members will also recall that at our meeting with the FCA in October 2014 they alluded to the fact that they would revisit previous thematic reviews. This is one such review.
Members should be aware that measures of value, when introduced, will:
(a) apply to stand-alone products as well as add-ons; and
(b) cover a wide range of products, not just the areas looked at previously (although commercial products are likely to be excluded).
In addition, the FCA is considering asking for data on value measures to be reported by distribution channel, in the hope this could show the influence distributors (including MGAs) have on the final retail price, thus highlighting varying values across the different channels.
We would like to point out that there is an error in this Paper and would ask you to read under paragraph 5.5 “Managing Agent” and not “Managing General Agent”, as written.
A list of questions the FCA is asking the profession to respond to is available from our website. Whilst members selling/distributing consumer products are the ones who are going to be affected by the introduction of value measures, the fact that the FCA is even considering commercial products should, we believe, be met with resistance when it comes to the questions in Section 3 – Scope and granularity. On that basis, all members should be engaging with this paper.
The MGAA is proposing to respond to key questions asked in DP 15/4, particularly as the FCA is encouraging MGAs to engage with them as a ‘single voice’, through the Association. Therefore if you wish to contribute to this submission, please answer any questions in the attached question set on which you have particular views and return your answers to me at email@example.com by Monday 14th September 2015. Alternatively, if you are responding directly to the FCA, please let me have a copy of your submission, assuming you are happy to share this.
DATE FOR THE DIARY
MGAA will be hosting a "Meet the Regulator" at our annual get together on Wednesday 7th October 2015 in the Lloyd's Library. Further details to follow.
BROKER CHECKLIST (using third party information sources)
Members have been asking for a list of checks which MGAs can undertake on brokers and other types of intermediary from information which is available from public registers or third party information sources. This process can be used to supplement, as well as verify, answers given to questions in any application form the MGA may ask the broker to complete (which may themselves give rise to further enquiries) and any other due diligence enquiries (for example, in connection with third party payments).
Whilst this checklist is primarily aimed at UK brokers, equivalent checks can be undertaken by MGAs wishing to appoint overseas brokers, to the extent that equivalent information is available.
A copy of this checklist is available here.