The Financial Conduct Authority (FCA) recently published the findings of a thematic review it had undertaken to look at the distribution chains in various general insurance (GI) markets. The review found that the product development and distribution approaches in some parts of the GI market posed a significant risk of harm to customers.

The FCA highlighted the role that firms’ purpose and values, and the influence these had on firms’ business models and strategies, has played in creating the harm potential they have identified.

This harm related to two main areas: price and quality – where the FCA said that the number of parties in some distribution chains increased the price of the GI products and adversely affected the products value, and the delivery of services and customer experience or outcomes, which was also negatively affected by the complexity of chains and the number of parties involved.

The FCA found that these harms stemmed from a lack of focus on customer outcomes (e.g. failing to consider the risks to consumers in the development of products and their distribution arrangements), and poor governance and oversight (e.g. a lack of, or failure to use and act on, management information related to customer outcomes).

So what should insurers and insurance distributors be doing to respond to the FCA’s concerns? Firstly, firms will want to consider their oversight of products to check it is robust and effective. In particular, they will want to ensure that the management information they receive over their distribution arrangements is sufficiently comprehensive and insightful. Firms should also ask themselves whether their distribution arrangements are at risk of producing poor outcomes for customers.

The FCA’s comment that this review is an “immediate call to action to all GI firms”, should further motivate firms to take a good, hard look at how their products are distributed.

The FCA has also said that its future work will look to assess firms compliance with the rules brought in by the Insurance Distribution Directive, and that the SM&CR will enable it to take a more interventionist approach if it sees failings, so firms should expect to see further action from the FCA if they do not make changes now.


With thanks to Quentin Mosseray for his help with this post.