FCA warns insurers to take action after finding ‘significant failings’
October 30, 2023
FCA Warns Insurers After Finding ‘Significant Failings’
The Financial Conduct Authority (FCA) announced that it has written to insurers warning that more action must be taken to ensure good consumer outcomes.
The FCA said that it has also reminded insurers of its expectations in making sure they check their products are providing fair value to its customers.
The letter entitled ‘Insurance market priorities 2023-2025,’ revealed the specific areas of the industry where the FCA had found “significant failings”.
It went on to provide examples of such failings that it had taken supervisory action against in the past year. These include:
- very long waiting times/delays in settlements
- the continued sale of products not providing fair value
- discriminatory pricing practices
- as well as the undervaluation of motor claims
Other failings mentioned in the letter were the weak identification of vulnerable customers and a lack of clarity around commissions.
In particular firms ‘paying significant amounts of commission to third parties’ where it was unclear how those commission levels had been assessed with fair value.
FCA found some GAP insurance products failing to provide value for customers
In a press release the FCA said it had also identified ‘further evidence’ that some Guaranteed Asset Protection (GAP) products may be failing to provide fair value to consumers.
This has come to light following the publication of the FCA’s latest insurance Value Measures Data (Jan-Dec 2022), which revealed potential concerns over the value of GAP products to customers.
What is GAP insurance?
GAP insurance (Guaranteed Asset Protection) is an addition to motor insurance which covers the difference between a vehicle’s purchase price and its current market value.
It provides cover for a financial shortfall such as in the event of a customer’s vehicle being written off or stolen. Or if the vehicle insurance pay-out does not pay back the original purchase value or remaining finance value.
It’s usually sold by either car dealers or lenders. However, they can be bought stand-alone.
According to the FCA and its data, only 6% of the amount customers pay in premiums is paid out in claims for GAP insurance.
The FCA said it has seen examples of some firms paying up to 70% of the value of insurance premiums in commission to parties, such as motor dealerships.
The FCA has instructed firms to take immediate action to prove customers are getting a fair deal when it comes to GAP insurance or it will intervene – giving firms a three-month ultimatum.
Rules were introduced in 2021 requiring insurers to ensure their products provided fair value. This included submitting regular Value Measures Data to the FCA, the latest of which has just been published.
Matt Brewis, Director of Insurance, FCA said: ‘This is an early signal of the work we’ll be doing under the Consumer Duty.
‘Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided.
‘If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.’