Insurance Sector update - Autumn 2024

The FCA has launched a review to assess 'fairness' in the premium finance market; FCA launches review into UK premium finance market.

There were some concerns from the regulator that individuals who finance their motor and home insurance payments might not be benefitting from equitable or competitive terms, especially as sector-wide prices escalate.

Firms will need to demonstrate value and positive outcomes through pertinent and relevant data collection and reporting.

An interim report detailing the findings of the market study and the proposed subsequent measures is expected to be released by the FCA in the latter half of 2025.

Here are some Huntswood tips to help support the upcoming scrutiny on Premium Finance:

• Ensure relevant and meaningful analysis of offerings against FCA standards and provision of competitive terms. Ensuring fair value can enhance customer trust and loyalty, particularly those facing economic challenges
• Collection of relevant data to demonstrate positive outcomes and compliance with Consumer Duty. Proactive compliance can prevent regulatory actions, improve customer satisfaction and increase good outcomes
• Benchmark your offerings against competitors to identify areas for improvement. Addressing inconsistencies can position your firm as a market leader in transparency and customer value

A continued challenge for firms is demonstrating persuasive and relevant fair value assessments. Huntswood have been in talks with the ABI and how they can help further support firms, and there is heavy FCA scrutiny on insurer reporting in this space.

Data needs to help deliver (and demonstrate) the right outcomes – the use of data needs to be ‘above the process’, i.e. allowing data to govern a holistic view across the entire customer journey and product lifecycle.

The FCA has warned that a similar outcome to controls in place for GAP insurance could spread to other products if value fails to be delivered to consumers - FCA warns of potential Gap action repeat in other markets after fair value review | Insurance Times.

Huntswood has extensive experience in supporting clients review, improve, embed and continually monitor Fair Value Assessments.

One of our previous articles talks more specifically to this - Consumer duty one year on: reframing the role of customer outcomes and demonstrating fair value.​

Some key points to help firms support their approach include:

• Implement data-driven approaches to evaluate customer outcomes across the product lifecycle - Demonstrating fair value can mitigate regulatory risks and enhance customer relationships. Where products have been launched, reintroduced or altered, there needs to be particular focus on reviewing outcomes led data to ensure all aspects of the value proposition are delivering good outcomes

• Connecting Price and Product Design - Identifying target markets for products and understanding their needs help firms to provide, and evidence, good value

• Communication plays a key part of delivering fair value - All firms should work to a ‘tell us once’ remit, which improves continuity for customers as they engage with your firm

The FCA is examining how claims are being serviced – a measure increasingly used to demonstrate consumer value. It has also announced its intention to investigate the rising costs of motor insurance and the procedures for handling claims as part of its role in the government’s motor insurance taskforce: The Motor Insurance Taskforce and Financial Conduct Authority (FCA) Market Study | ABI.

On Wednesday 16th October, the Department for Transport and the Treasury jointly convened the Motor Insurance Taskforce. This taskforce aims to ‘root out factors that increase costs for the car insurance industry.’

In essence, the taskforce is aiming to bring down the cost of claims handling for insurers. Because the premiums of the many pay the claims of the few, the idea is that by reducing the cost of claims you can bring down premiums for consumers.

Some key considerations to help achieve better claims servicing include:

• Enhance Training - Well trained claims handlers are crucial for delivering quality cost-effective service. This not only creates better outcomes but a more efficient operation

• Implement transparent communication strategies - Clear and proactive communication can enhance customer experiences and mitigate frustration during the claims process, potentially leading to less complaints.

• Consider getting an independent review of your claims handling process - to identify opportunities for increased efficiency and enhanced customer experience

The FCA is testing and evaluating how total loss statements are being calculated, and they’re looking to ensure customers are being treated fairly.

A key starting point is ensuring that firms are using the valuation guides effectively; there is guidance to help with this. The Financial Ombudsman has a specific guide for firms on how they think valuation guides should be approached.

As a result, some key issues being highlighted include:

• Firms offering less than the value of the written off / stolen vehicle and only offering more should the customer complain
• The FCA has directed insurers previously to correct any historic practices of this nature; with remediation work for a number of high-profile insurers
• Consumers are directed to the Financial Ombudsman Service if they remain dissatisfied with the valuation provided by an insurer in this circumstance

There is specific guidance for firms on how best to address complaints of this nature: Vehicle write-offs and valuations – Financial Ombudsman service

Some further considerations for firms to ensure alignment with regulations include:

• Reviewing and enhancing the valuation process to ensure appropriate and competent use of approved valuation guides and ensure fair practice in applying that to claims processes. Fair treatment in this area is fundamental to fair treatment and market integrity. This leads to greater customer outcomes and can foster customer loyalty and trust
• Establishing clear and informative communications with customers. Clearly explaining the process and criteria used to assess vehicle worth can lead to less confusion, greater transparency and better outcomes
• If customer outcomes have fallen short of regulatory expectations, consider how to put these customers back in the position they would have been in

The thematic review seeks to simplify and streamline current regulation. There is an opportunity for firm feedback and engagement: Review of FCA requirements following the introduction of the Consumer Duty | FCA.

The regulator is actively asking for feedback on how guidance could be simplified to high-level rules, where detailed rules are necessary and any benefits or costs for changing the rules.

This is an opportunity to help set up the financial sector for the next decade, to run more efficiently, clearly and fairer for consumers.

This is beneficial to you, your customers and the insurance industry as a whole, as simplified regulations can lead to operational efficiencies, enhanced compliance and greater market integrity.

Huntswood encourages firms to engage with the FCA to provide feedback that is relevant to you. This allows you to feedback meaningful insight from your firm.