1. The PRA Approach to Supervision for Smaller Insurers
Patrick Connolly
Manager, Retail General Insurance Team
Topics:
1.1
1.2
1.3
1.4
1.5
The Regulatory Framework
Firm Categorisation
The Supervisory Approach
Regulatory Co-ordination
Communication
The PRA Approach to Supervision
1.1 The Regulatory Framework
Key:
FPC
FCA
Financial Policy Committee
Financial Conduct Authority
Source: Bank of England Quarterly Bulletin, Q4 2012
The PRA Approach to Supervision
1.1 The Regulatory Framework
The PRA’s statutory objectives:•
General objective:
“promoting the safety and soundness of PRA-authorised firms”
•
Insurance objective:
“contributing to the securing of an appropriate degree of protection for those who are or
may become policyholders”
The PRA Approach to Supervision
1.2 Firm Categorisation
All firms
Cat 5 Firms
Cat 1
Cat 2
Cat 3
84
186
Cat 4
303
Cat 5 Live
Cat 5 Run-off
Cat 5 P&I
Clubs
101
49
16
33
5
The PRA Approach to Supervision
1.2 Firm Categorisation
Category 4
Insurers whose size …….. “very little capacity individually to cause disruption to the UK financial
system. ……………”.
Category 5
Insurers whose size, interconnectedness, complexity and business type give them almost no capacity
individually to cause disruption to the UK financial system by failing or by carrying on their business in
an unsafe manner, but where difficulties across a whole sector or subsector may have the potential to
generate some disruption. They have no capacity to cause disruption to the interests of a substantial
number of policyholders.
The PRA Approach to Supervision
1.2 Firm Categorisation
Supervisory Models
•
Category 4 firms:
• Annual supervisory assessment visit
• Desk-based reviews of returns and Management Information
• Issue-driven meetings and reactive work
• Peer group and trend analysis
•
Category 5 firms:
• Firm Enquiries Function for routine queries
• Broadly reactive supervision in response to crystallised risks
• Some proactive analysis and assessment at solo and peer-group level
The PRA Approach to Supervision
1.2 The Supervisory Approach
Firm Enquiries Function
•
Queries relating to:
– Returns
– Authorisation process
– The Handbook
– First reporting of crystallised risks
Supervision Team
•
•
•
•
Authorisations
– Changes in Control
– Approved persons (red channel)
– Part VII transfers
Capital issues
Strategic issues
FCA interaction
The PRA Approach to Supervision
1.3 The Supervisory Approach
“Forward-looking and judgement-based supervision…”
What does this mean in practice?
The PRA Approach to Supervision
1.3 The Supervisory Approach
PSM
Peer
Group
3
January
Capital
PSM = Periodic Summary
Meeting, sets our supervisory
strategy
PSM
Peer
Group
4
April
Capital
Annual
Returns
Submitted
Cat 5
Cycle
PSM Peer
Group 2
October
Capital
PSM
Peer
Group
1
July
Capital
Review
Annual
Returns
The PRA Approach to Supervision
1.3 The Supervisory Approach
Threshold Conditions
•
Minimum requirements that firms must meet at all times in order to be permitted to carry out
regulated activities
•
Firms will need to meet both PRA-specific and FCA-specific threshold conditions
•
PRA-specific threshold conditions:
– Legal status
– Location of offices
– Prudent conduct
– Suitability
– Effective supervision
•
The PRA will assess firms against the threshold conditions on a continuous basis
The PRA Approach to Supervision
1.4 Regulatory Co-ordination
•
Effective delivery of our approach requires co-ordination with the FCA
–
–
•
Focussed at firm level
MoU and colleges to ensure statutory duty to co-ordinate is effective
Firm-specific supervision alone is not sufficient to deliver financial stability. Must be complemented
by an effective macroprudential regime
–
Two-way flow of information and exchange of views between the PRA and the FPC
–
PRA responsible for implementing relevant FPC recommendations on a ‘comply or explain’
basis
–
FPC has powers to direct the PRA
The PRA Approach to Supervision
1.5 Communication
Our main objectives are to:
•
Communicate the PRA objectives and expectations to industry clearly.
•
Understand market trends in order to inform our forward-looking approach and
communicate supervisory priorities for the sector.
•
Raise awareness of the information and support available to smaller insurers.
The PRA Approach to Supervision
2. Feedback and Looking Ahead
Reg Clarke
Associate, Retail General Insurance Team
2.1 What we are seeing
•
Data review
•
Peer review
•
Board capability and governance
•
Firm Enquiries Function: Trends
Feedback and Looking Ahead
2.1 What we are seeing: Data review (annual returns)
£bn
Smaller Insurers: Performance Indicators
10
9
8
7
6
5
4
3
2
1
0
Measure
Total Funds
GWP during year
Free Capital (P1)
2011
Key Performance Indicators: 2012
• Total funds up 17%
• Gross Written Premiums up 15%
• Capital levels increased
• BUT at individual firm level
experiences rather mixed
2012
Feedback and Looking Ahead
2.1 What we are seeing: Data review (quarterly returns)
•
Capital data supports PRA supervisory approach
-
Better use of data to help identify outliers and trends
Enhances our supervision of firms (more proactive)
•
Capital levels increasing steadily
•
Fewer than 10% of firms have Pillar 1 ratios below 150% of their
capital resource requirement
Feedback and Looking Ahead
2.1 What we are seeing: Data review (annual
returns)
•
Reporting quality generally good but
•
Review of ECR (Enhanced Capital Requirement) forms reveal
misreporting of individual capital guidance
o Firms need to understand the ICG they have been set
o Firms ICG cannot be lower than MCR
•
Misreporting of base capital resource requirement by some firms
o Impacted by Euro : Sterling exchange rate
o Applies from 31 December
Feedback and Looking Ahead
2.1 What we are seeing: Data review (quarterly returns)
Feedback and Looking Ahead
2.1 What we are seeing: Peer group review
•
Annual periodic summary meeting for peer groups of firms
•
Key objectives of review is to focus on identifying and feeding back trends and issues to
the firms within that peer group
•
Challenging exercise given niche markets of some firms
•
PRA in early stages of review. Expect to cover our specified groupings over 18 month
timeframe (by Q2 2015)
Feedback and Looking Ahead
2.1 What we are seeing: FEF feedback
•
First point of contact, liaising closely with key areas of the PRA and Bank.
•
Dedicated team of five, wide range of regulatory experience.
•
Webpage available to provide information on the issues you contact us about or are
relevant to you, including reporting and authorisations.
Feedback and Looking Ahead
2.1 What we are seeing: Board capability and governance
•
Significant PRA resource spent in dealing with the issue of Board capability and
governance.
•
PRA expects firms to have regular Board review and assess:
–
–
–
–
Does the board have a good mix and balance of skills, experience, independence and
knowledge to enable them to discharge their responsibilities effectively?
Is the Board satisfied that the business is run prudently?
Have clear structures of accountability and delegation been established?
Does the Board provide appropriate direction and challenge to the management
team?
NB:
•
These expectations apply to all firms, regardless of size
•
The things we would expect of a Board are referenced in the our Principles and in UK
Corporate Governance Code
Feedback and Looking Ahead
2.2 Looking Ahead
• Intend to seek forward looking quarterly capital data
• PRA assessing the potential for a ‘programme’ of ICA reviews for
Category 5 firms
• Electronic Reporting [Deadline for comments on OCP 8/13 is 1
November 2013]
• PRA intend to develop a proportionate NDF regime once SII
position is clearer
Feedback and Looking Ahead
3. Emerging Risks for Insurers
Andrea French
Technical Specialist, Insurance Sector Team
3.1 Definition of an emerging risks
An emerging risk can be defined as:
"an issue that is perceived to be potentially significant but which may not be
fully understood or allowed for in insurance terms and conditions, pricing,
reserving or capital setting".
(Source: Lloyd’s of London)
Emerging Risks
3.2 Key drivers of risk
The key drivers of risk include:
•
Economic, technological, environmental and socio-political
developments as well as the interdependencies between them.
Other risk drivers can include:
•
The changing business environment, such as liability issues, evolving
regulatory regimes, stakeholder expectations, and shifts in risk
perception.
Emerging Risks
3.3 Insurance-specific risks
This presentation will concentrate on the insurable areas of risk for both life and general insurers.
These risks include:
•
Life Products Risk (credit & counterparties, impact of the low interest rate environment,
enhanced annuities and retail distribution review & platforms)
•
General Insurance (GI) Risk (impact of the low interest rate environment, inadequate
reserving, UK flooding and periodic payment orders)
•
Technology Risk (cyber attacks)
•
Stakeholder Risk (shadow banking activities)
•
Black Swan Risks (combined effect of financial, catastrophe & pandemic)
Emerging Risks
3.4 Life Emerging Risks
Financial risks - Credit and counterparties
Risk
Impact
Risk Mitigation
Growth of the annuity market posing significant
increase in risk to life insurers.
Number of annuity writers backing their
liabilities with equity-release mortgage or
other non-standard asset classes, which
may be unsustainable in the long term.
Ensure asset classes being considered are fully
understood.
Particular issue - backing annuities by moving
into alternative assets.
Seek permission from the regulator, where
necessary.
Actively monitor portfolios for different and
unexpected risks.
Emerging Risks
3.4 Life Emerging Risks
Financial risks - Low interest rate environment impact
Risk
Impact
Risk Mitigation
Impact of low interest rate environment
depends on the extent to which life
insurers are asset and liability
mismatched.
Depends on the structure of the portfolio. Life insurers
typically have high bond allocations.
Ensure there is
• appropriate assessment of risk; and
• conduct stress testing exercises.
Margins for assets being managed may
be hit as investment returns and profits
are reduced.
Interest risk hedging activities could put pressure on
bond yields causing:
•
reduction in firm’s solvency levels;
•
restricted investment policies;
•
restricted ability to write new business;
•
reduced new business profitability.
Strategy planning should assess
vulnerabilities including second order and
behavioural effects and amplification
issues.
Future - may affect the availability of own funds after the
effect of subsidiaries to the group under the Solvency II
group solvency calculations framework
Emerging Risks
3.4 Life Emerging Risks
Product Risks – Enhanced annuities
Risk
Impact
Risk Mitigation
Enhanced annuities and other
non-standard annuities offer
higher annuity rates to people
whose lifestyle or medical
conditions cause their life
expectancy to fall below the
expected mortality rates
Low yield environment and difficult
macroeconomic conditions mean people are
incentivised to derive more value from their
savings.
Monitor medical advancements affecting future life
expectancy that annuities have been provided for.
They may be more use of non-standard
products against a backdrop of falling standard
annuity rates
Ensure credible contingency plans are in place for the
treatment of assets for Solvency II.
Ensure books of business do not grow unsustainably.
Firms may wish to consider stress testing their portfolios for
scenarios such as withdrawal and/or reduction of
reinsurance covers or significant market valuations changes
in the future.
Emerging Risks
3.4 Life Emerging Risks
Product risk – Platforms and Retail Distribution Review
Risk
Impact
Risk Mitigation
Retail Distribution Review implemented in
December 2012.
Back books steadily declining as maturities and
surrenders exceed new business premiums.
Immediate risk of failure is low.
Fundamental change to distribution of retail
investments could affect consumer behaviour,
preference and changes of products and markets
attractive to firms.
The key risk - life insurers’ existing books of
business decline significantly faster than
expected across the sector before new
strategies are developed and providing steady
cash flow.
Monitoring is required to ensure sector
trends of a persistent decreasing back book
do not accelerate faster than expected
significantly increasing the impact.
Emerging Risks
3.4 GI Emerging Risks
Financial risks - Low interest rate environment impact
Risk
Impact
Risk Mitigation
Slow economic recovery places pressure on
premiums, contracting market size, and lowering
investment returns which affects profitability.
Firms seeking to improve returns may attract
significant asset risks to their balance sheet.
Continue to focus on:
These factors combined with competition, may
result in general insurance firms to seek out more
reward for their risk.
Unprofitable underwriting can result in firms
launching new products writing new and/or
growing the business in current and new
territories with a lack of data, knowledge or
experience.
•
•
•
future underwriting strategies
pricing policies and
monitoring investment strategies.
Emerging Risks
3.4 GI Emerging Risks
GI line of business risk – Inadequate reserving
Risk
Impact
Risk Mitigation
Inadequate reserving by general insurers
can:
•
understate the costs of claims;
•
create premium rate pricing
adequacies; and
•
stress reserving risk capital
requirements.
Inadequate reserving will strain business models and
affect solvency capital levels.
Perform regular deep-dive reserve
exercises to ensure that they understand
their claim exposure fully.
Coupled with:
•
competitive market pricing pressure;
•
changing supply and demand trends;
•
increased claims inflation costs; and
•
current low interest rate environment
can result in pressure to alter an insurers behaviour in
the current phase of the underwriting cycle.
Effective reserve governance is
essential.
Ensure reserves are adequate by using
correct booking of reserves with
appropriate challenge.
Emerging Risks
3.4 GI Emerging Risks
GI line of business risk - UK flooding
Risk
Impact
Risk Mitigation
More than 30 major rivers in the UK that have
extensive reach and are currently or were
historically, multi-channelled.
More flooding is predicted in the UK and rates of
river bed, bank erosion and floodplain
sedimentation are also likely to accelerate.
Identify vulnerable points within their
insured portfolio of household properties
and maintain adequate reserves to
manage these exposures.
These rivers represent significant points of
increased vulnerability in the river network to
increase flooding.
There remains the possibility that certain
households will not be able to afford flood
insurance as it becomes too costly.
Historic underinvestment in flood defenses and
changing weather patterns have increased the
risk.
A new regime coming in mid 2015 is
intended to ensure the continued
widespread availability of flood insurance
to high-risk households.
Follows the expiry of the Statement of
Principles.
Emerging Risks
3.4 GI Emerging Risks
GI line of business risk - Periodic Payment Orders (PPOs)
Risk
Impact
Risk Mitigation
Since their introduction through the 2003
Courts Act, PPOs have begun to change the
landscape of how large bodily injury (BI) claims
are paid in the UK.
This payment method transfers to the insurer risks
such as longevity, investment and inflation. PPOs
now pose a material current and future risk for
motor insurers.
It is essential for:
•
Firms to actively track and monitor
potential PPO claims.
PPOs are an alternative to lump sum
payments. Under a PPO settlement an insurer
pays a semi-annual amount to the claimant for
the remainder of their life, like an annuity.
It is estimated that, within a decade, 25% of
general insurer motor reserves could be formed of
PPO commitments.
•
Have specific reserving, modelling
and methodology in place to
minimise the longevity, investment
and inflation risk.
Emerging Risks
3.4 Life and GI Emerging Risks
Technology risk - Cyber attacks
Risk
Impact
Risk Mitigation
Many firms are leaner so are opting to use cloud
computing, offshoring data and processes to third
party firms.
A cyber attack could affect a firm’s ability to
process premiums and issue insurance
contracts affecting cashflows and covers –
particularly an issue for compulsory
insurances.
Ensure and monitor that third party
firms provide the security and service
that they are contracted to deliver.
A cloud service provider concentration
could become a second order risk if such
providers were subject to multiple cyberattacks causing a failure of services.
Rectify breaches immediately to
minimise security risks is paramount.
Critical functions outsourced include catastrophe
modelling, actuarial analysis and compliance
functions.
Constantly monitor firewalls.
Limit staff use of mobile devices to
minimise damage to high risk critical
areas of the infrastructure.
Emerging Risks
3.4 Life and GI Emerging Risks
Stakeholder risk - Shadow banking activities
Risk
Impact
Risk Mitigation
Shadow banking activities can cover nonbanking financial firms that provide services
similar to traditional commercial banks where
there is a maturity transformation.
Non-traded assets are highly risky and
volatile and may cause significant losses
in a short timeframe. They may also be
less liquid in times of stress and
valuations may be difficult to quantify.
Firms engage with the regulator to
ensure products are appropriate.
Such activities could include credit investment
vehicles (e.g. investment funds, mutual funds
and trusts) that have a cash management or
very low risk investment objective.
Once deemed appropriate firms may
require expert advise when transacting
in these products.
Firms should regularly monitor asset
exposures to minimise risk and volatility.
Investments may also occur in unregulated
markets, so are not visible in conventional
balance sheets, making it difficult to assess
exposures.
Emerging Risks
3.4 Life and GI Emerging Risks
Black Swan - Combined effect of a financial, catastrophe & pandemic events
Risk
Impact
Risk Mitigation
Simultaneous shocks to the:
Certain scenarios could lead to loss in a
large number of life products and GI lines
of business.
Some policies may be hit unexpectedly by claims, the
insurance industry should clarify coverage intentions
sooner rather than later to ensure contract certainty.
Life and health assurers will be adversely
affected in a pandemic event and GI
insurers could experience unprecedented
liability claims and an accumulation or
large value claims following a
catastrophe event.
Firms ensure they have an understanding of the financial
markets second order, behavioural and amplification issues
affecting their investments
•
•
•
global economic system
natural catastrophes
pandemics
could trigger insured loss
events which could test the
resilience of insurers.
Claims could also come from secondary
impacts to society.
A firms solvency capital could be
adversely affected if there is a “flight to
quality” at the same time due to investor
unpredictability.
Firms ensure they understand their concentration of
exposures for natural catastrophe (for modelled and
unmodelled perils)
Pandemic contingency plans should aim to ensure
continuity of essential operations during an extended
period of high illness rates in the workforce, suppliers, and
customers.
Emerging Risks
4. Solvency II update
Catherine Beech
9 October 2013
Agenda
4.1
4.2
4.3
4.4
European policy update
EIOPA’s preparatory guidelines
PRA’s approach to the preparatory phase
What this means for smaller insurers
4.1 European policy update
•
Implementation date
– The PRA planning horizon remains 1 January 2016
•
Solvency II (amended by Omnibus II Directive)
– Amends the Level 1 text
•
Level 2 and Level 3 text
– Will follow the publication of the Level 1 text
• These texts contain more detailed implementing measures and guidance
4.2 EIOPA’s preparatory guidelines
These are aimed at supporting regulators and firms in preparing for Solvency II. They
cover four main areas which EIOPA considers fundamental for effective implementation.
The four areas are:
• Systems of Governance;
• Forward looking assessment of the undertaking’s own risks (based on the ORSA
principles);
• Reporting; and
• Pre-application for internal models.
A link to EIOPA’s final guidelines, feedback statements and annexes was made
available on the PRA website on 27 September 2013.
4.3 PRA’s approach to the preparatory phase
PRA approach to considering the preparatory guidelines
•
This is not early implementation of Solvency II.
•
The PRA supports EIOPA’s proportionate and pragmatic approach in preparation for the
implementation of Solvency II.
•
The PRA will apply the guidelines to firms in a proportionate and risk-based manner,
consistent with the PRA’s overall approach to insurance supervision.
•
The PRA expects firms to make the necessary preparations to be compliant with the relevant
requirements for the Solvency II regime at implementation.
PRA approach to setting expectations of the UK insurance industry
•
We aim to publish a draft PRA Supervisory Statement for consultation in October.
•
This will set out the PRA’s expectation of firms.
•
We will issue a final Supervisory Statement in December, and support this with industry
communications, including briefing sessions for firms.
4.4 What this means for smaller insurers
Smaller insurers should continue to:
•
ensure that they meet the current regulatory requirements; and
•
submit six monthly Solvency 2 progress statements when requested.
We encourage firms to:
•
keep abreast of developments in Solvency II – the PRA will post news at
www.bankofengland.co.uk/Solvency2, and firms should also refer to the websites of
European policy institutions, e.g. EIOPA, European Commission and Parliament;
•
be familiar with EIOPA’s preparatory guidelines that apply to them;
•
refer to the PRA’s Supervisory Statement to understand the expectations of firms; and
•
make the necessary preparations towards full compliance of Solvency II at implementation.
Useful resources
Firm Enquiries Function
•
Email: PRA.FirmEnquiries@bankofengland.co.uk
Phone: +44 (0)20 3461 7000
Please have your six digit firm reference number (FRN xxxxxx) ready.
•
Post: Firm Enquiries Team (MG1-SE)
Prudential Regulation Authority
20 Moorgate
London, EC2R 6DA
Websites
•
Smaller Insurers Webpages
http://www.bankofengland.co.uk/pra/Pages/supervision/smallinsurers/default.aspx
•
Solvency II webpages on Bank of England website
www.bankofengland.co.uk/Solvency2
•
European Commission website
http://ec.europa.eu/internal_market/insurance/solvency/index_en.htm
•
EIOPA website
https://eiopa.europa.eu/
Unrestricted
Changing Conduct Regulation in the UK
October 2013
Unrestricted
The Financial Conduct Authority (FCA)
Strategic objective
• ensuring the relevant markets function well
Operational objectives
• promoting effective competition in the interests of
consumers;
• securing an appropriate degree of protection for
consumers; and
• protecting and enhancing the integrity of the UK
financial system.
New regulatory system
Unrestricted
FCA Statutory Objectives
•
Securing an appropriate degree of protection for consumers
•
Promoting effective competition in the interests of consumers:
•
o
the needs of different consumers
o
the ease with which consumers can change providers
o
the ease of new entry
o
how far competition is encouraging innovation
Protecting and enhancing the integrity of the UK financial system (including):
o
soundness, stability and resilience
o
orderly operation of markets
o
financial crime
o
market abuse
o
transparency of price formation
Unrestricted
Supervision of firms
Aim of Supervision
To ensure firms have the interests of their customers and the integrity of the market at the
heart of how they run their business.
How will we do this?
By influencing, persuading and, where appropriate, using formal powers to achieve a
significant transformation in firms’ conduct behaviours.
For what population of firms?
• The FCA is responsible for the retail and wholesale conduct supervision of c.25,000 firms
•
The FCA is also responsible for the prudential supervision of c.23,000 firms (i.e. those
that are not prudentially regulated by the PRA).
Custodian
Banks
Fund
Managers
Insurance
Intermediaries
Credit Unions
Mortgage
Intermediaries
Mortgage
Lenders
Retail Banks
Financial
Advisors
Building
Societies
Life Insurers
Platforms and
SIPPs
Wealth
Managers
London
Markets
Retail GI
Wholesale
Firms
Unrestricted
Supervision of firms – Prudential Supervision
Although primarily a conduct regulator, the FCA is the solo regulator for firms not
prudentially regulated by the PRA.
Approach
•
Starting principle is that firms should be allowed to fail,
therefore, our focus is on mitigating the impact on retail
customers and market integrity of firms failing or under
financial strain.
•
Our approach is to ensure that any failure is orderly by
ensuring that customers assets and money are protected.
•
Prudential supervision is graduated according to prudential
significance.
•
On-going dialogue with PRA where we both have
prudential responsibilities for a group.
Key Features
Prudential Classification – based on the impact that the
disorderly failure of a firm could cause in terms of market
disruption and market failure.
Setting Capital & Liquidity Financial Resource
Requirements – assessing financial resources requirements
for our most prudentially significant firms.
Regulatory Return Monitoring – pro-actively reviewing
returns for the most significant firms and acting on alerts for
other firms.
Thematic Work – cross-firm capital / liquidity work (including
smaller firms)
Unrestricted
The FCA aims to be a judgement based, forward-looking
and pre-emptive regulator
The FCA’s approach emphasises 5 elements:
• be forward-looking in assessment of potential problems – looking at how we can tackle issues
before they start to go wrong;
• intervene earlier when we see problems and before they cause consumer detriment or damage to
market integrity;
• tackle underlying causes of problems, not just the symptoms, as this will be more effective and
efficient in the longer term for consumers and firms;
• secure redress for consumers if failures do occur; and
• take meaningful action (credible deterrence) against firms that fail to meet our standards,
including levels of fines that have a deterrent effect.
To do
•
•
•
•
this, in addition to the powers inherited from the FSA, we are able to:
Temporarily ban products or restrict sales for up to 12 months;
Stop misleading financial advertising;
Impose requirements on firms; and
Subject to consultation, tell the market earlier about enforcement action.
Unrestricted
Overview of FCA model
Unrestricted
How will we achieve our objectives?
Firm Systematic Framework – Key judgements
How the firm affects
consumers, markets or
competition
Adequate
arrangeme
nts for
client
money
Business
Model &
future
strategy
Key judgements
Framewor
k for
identifying
and
managing
risks
Does
the
firm have
the
interests of
its
customers
and the
integrity of
the market
at the heart
of how the
business is
run?
Cultural
tone set
by senior
managem
ent
Control &
Governanc
e
arrangeme
nts
Sales /
Transactio
n lifecycle
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Co-ordination with the PRA
The FCA and PRA operate under different sets of objectives, although there is a
Memorandum of Understanding in place between the two setting minimum co-ordination
standards, including:
• Domestic supervisory colleges, with frequency depending on categorisation of firm;
• Regular exchange of information, including material conduct risks, internal models,
and capital and liquidity requirements (e.g. coverage of conduct risks in ORSA);
• Notification of findings of Pillar 3 work;
• Consultation on SIF applications;
• Expressing independent views on Part VII transfers; and
• Specific requirements for with-profits businesses.
The supervisory teams will strive to co-ordinate where possible.
Unrestricted
Focus on retail consumers
The FCA’s statutory objective is to secure an appropriate degree of protection for
consumers.
Customers do not always behave rationally and firms can exploit consumer biases. The FCA
is using Behavioural Economics (eg. randomised control trials) to better understand these
and inform our supervisory approach.
We expect firms to:
•
Evidence how their consumers receive appropriate outcomes, throughout the product
lifecycle
•
Implement targets that are aligned with consumers actual cover requirements
•
Understand the difference between customers being satisfied and customers being
treated fairly
•
Identify, capture and mitigate the risks to their customers receiving inappropriate
outcomes
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Enhanced focus on Wholesale/Commercial Conduct
The FCA’s focus is to ensure the integrity and resilience of wholesale/commercial insurance
markets, rather than seeking to introduce concepts of detriment and redress that we use in
retail markets.
Firms should recognise, however, that activities in retail and commercial markets are
interconnected and that risks caused by poor conduct can be transmitted and undermine
both markets.
The FCA places more emphasis (and takes a more assertive and interventionist approach)
in particular on three areas:
• where commercial products filter down or are distributed to retail consumers;
• where certain behaviours in commercial markets can cause damage to market
integrity; and
• where market structures can result in participants being disadvantaged or the market
being inefficient.
Unrestricted
Issues & Products work (1)
Examples of current or recent thematic work affecting insurers – by
sector:
Life
Insurance
Annuities
Inducements &
Conflicts of
Interest
Unit-linked fund
governance
Investment
Advisors &
Platforms
Asset
Management
Non-advised
sales &
simplified
advice
investment
sales
GI Claims
handling
Fund charges
How firms are
implementing
the RDR
General
Insurance
Crosssectoral
Financial
Incentives
Motor Legal
Expenses
Mobile phone
insurance
Complaints
Unrestricted
Issues & Products work (2)
Current and completed reviews covering general insurance
Current
Completed
Sales Incentives
Premium finance
General insurance add-ons
Mobile phone insurance
Private investigators
Motor legal expenses
Claims handling
Telematics
Conflicts of interest
Complaints handling
Third party payments / financial crime controls in
wholesale brokers
Referral fees