FCA guidance on assessing product value for insurance firms

With insurance products and services coming under greater scrutiny due to the coronavirus, the FCA have provided further clarity on how firms can demonstrate customer value. It is not with the expectation that firms should be reassessing the value of their products in the likelihood of a customer claim, but whether there are any material issues affecting the value of general insurance and protection products offered. This applies to products where certain benefits are no longer offered, for example where boiler services cannot be maintained due to lockdown or public liability providing little use to businesses.

The FCA is currently publishing its finalised guidance, clarifying the following changes:

• Firms should consider the value of products where, due to the impact of coronavirus, there has been a material reduction in risk so that they are providing little or no utility to customers, and not just where claims are no longer possible.
• Firms are not expected under this guidance to assess value on an individual customer level, but should consider our guidance on helping customers in temporary financial difficulty as a result of coronavirus.
• Firms can assess the longer-term impacts of coronavirus on their insurance products on an ongoing basis beyond the six month period the FCA has set out for product reviews resulting from this guidance.

Speaking about these changes, Sheldon Mills, Interim Executive Director of Strategy and Competition at the FCA, said:

“Customers should expect value from the insurance products that they buy, but the exceptional circumstances of coronavirus may have materially reduced the value they are getting. Today’s guidance is designed to protect consumers by directing insurance firms to review the products they offer to ensure they provide appropriate value and take action where there has been a fundamental change in risk or where certain benefits can no longer be provided.

Firms may choose to go further than this guidance, and we recognise that some firms have already taken steps to support customers, which we welcome.”

Firms should review their product lines and decide on any resulting actions within six months. This might include changing how benefits are delivered, refunding some premiums or suspending monthly payments for a certain period of time.

This guidance comes into immediate effect but will be reviewed in six months in light of developments regarding coronavirus, with further revised if appropriate.

To read the guidance in full, click HERE