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.