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FCA publishes life insurance supervisory letter

FCA has published its supervisory strategy for life insurers. The letter updates its communication from December 2018 and looks at:

  • how the 2018 strategy has progressed;
  • FCA’s updated view of the key harm risks;
  • FCA’s expectations of insurers; and
  • how its supervisory strategy is looking to ensure firms meet expectations and that the risks of harm are being appropriately mitigated.

It has also included the major regulated TPAs who perform servicing, administration and systems functions on an outsourced basis for life insurers. Insurers should be considering the risks these firms present and how to mitigate them.

FCA has sought to mitigate the risks of consumer harm through poor investments, unclear terms and operational failures. Its work has not identified widespread weaknesses in the management and mitigation of these risks, but it has observed some poor practices.

Overall, it thinks firms have responded well to the challenges of the pandemic, but is concerned about strains on systems created by the significant number of customer migration programmes.

It considers the current harm risks to be:

  • weaknesses in pricing and governance practices leading to excessive charges;
  • weaknesses in product and migration programme governance resulting in poor quality products and services, and customers buying unsuitable products;
  • weaknesses in operational risk management resulting in loss of service and loss or misuse of customer data;
  • disorderly exits from outsourcing arrangements;
  • markets developing in a way that results in customers not having access to products that suit their needs; and
  • control and oversight weaknesses failing to alert customers to scams.

Going forwards, FCA is clear it expects SMF holders to take responsibility for compliance with their responsibilities and also to drive the wider diversity and inclusion culture, as firms have some way to go on this. SMF holders must also ensure the Certification Regime and Conduct Rules are embedded effectively.

The letter also highlights key ongoing changes and initiatives, not least on fair treatment of vulnerable customers, operational resilience and insurance pricing.

FCA will continue to engage with insurers and TPAs and update them on key risks in 2023.

Emma Radmore