The FCA’s thematic work on the general insurance distribution chain

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The FCA commissioned work into the business trends of the general insurance distribution chain (“GIDC”). The full Guidance Consultation (“GC”) report, the linked ‘Dear CEO’ letter and the Thematic Review all set out the FCA’s expectations for firms in the general insurance (“GI”) sector. This follows implementation of the Insurance Distribution Directive (“IDD”), and the Senior Managers & Certification Regime (“SMCR”).

The primary aim of the GC report is to identify areas of harm to consumers and to clarify the FCA’s expectations of firms that manufacture or distribute GI or pure protection products. The GC report identifies the extent to which practices within the GIDC reduce the value that customers receive from their insurance products. The FCA has also used the report to reiterate the FCA’s expectations on how firms ought to comply with the UK regulatory regime, including compliance with the IDD and SMCR.

The GC report identifies that firms are failing to provide adequate consumer protection. The FCA’s examples of ‘harm’ were:

  • Customers purchasing products that are not appropriate for them or their needs.
  • Customers paying increased prices due to the number of firms in the GIDC taking a cut of the premium when in reality they incur little cost and/or deliver little benefit.

The FCA further reports that ‘harm to consumers’ arises from the following areas:

  • failures in product design;
  • a lack of robust/weak oversight of the distribution chain;
  • poorly designed product distribution strategies; and
  • conflict of interests arising and caused by renumeration strategies in the GIDC.

The FCA concludes that firms will significantly improve their product design, approval and review process if they follow FCA guidance in the GIDC report which will show a firm’s compliance with the FCA’s regime. In essence, to improve protection for customers, GI firms should be taking the steps set out in the GIDC report when designing and selling their GI products.

The expectations and duties identified from the review extends beyond the designers, or sellers, of aninsurance product. Manufacturers and distributors  must have controls in place to ensure consumer protection takes place at all stages of the GIDC.

With the introduction of the SMCR, the FCA  expect clear lines of individual accountability across GI firms, for each of the related activities identified in the GIDC report.  This is to ensure that no customer is at a disadvantage in comparison to customers higher up the chain. The implementation of IDD and SMCR is seen by the FCA as an opportunity to ‘level the playing-field’ for consumers, so they are not being disadvantaged by lengthy insurance distribution chains that in reality, add little to no value to the products on offer to consumers.

How has the FCA intervened?

The Dear CEO letter highlighted recent interventions by the FCA, including:


Fined over £5 million for their oversight of claims handling and customer outcomes.

Express Gifts Limited

Agreed to a £12.5 million redress affecting around 330,000 customers, who were sold insurance that offered them limited or no value.

The Carphone Warehouse

Fined over £29 million for mis-selling mobile phone insurance and failing to properly investigate and fairly consider customer complaints which arose from the mis-selling.

Next Steps for your business

The FCA’s review, the implementation IDD and SMRC, and the specific enforcement examples above, clearly demonstrate the robust action the FCA are taking in addressing the potential for harm and poor outcomes for customers in the GI market.

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