Insurance Regulatory eBulletin - Conduct regulation

Regulation round up
On 19 April, the FCA published its monthly Regulation round-up. The Hot Topics included

  • the need for transparency in insurance renewals*;
  • the FCA’s Business plan, Fees Consultation Paper and the FCA Sector Views*; and
  • the FCA warns public of increased threat of loan scams.
This edition includes the following articles that are relevant to insurers or insurance intermediaries:
  • FCA: Live and local regional programme events in 2018
*covered below

Insurance firms still failing to meet FCA general insurance renewal rules
On 3 April, the issued a press release announcing that it will take action against general insurance firms who are failing to properly implement rules introduced to increase transparency and encourage shopping around at renewal time.

The FCA outlined in October 2017 how firms were failing to meet the rules, highlighting four particular areas where it found firms were failing. These were:

  • failing to implement the new rules for all products and customers;
  • misstating the previous years’ premium;
  • leaving out the shopping around message or not presenting it in a way which draws the reader’s attention; and
  • firms failing to properly identify all customers who needed renewal information either because of system error or a mistaken interpretation of the type of customer that is captured  by the rules.
The FCA expects firms and senior management in those firms to take immediate action to ensure they are compliant.

To reinforce the message the FCA noted in its Regulation Round up that the insurance renewal rules came into effect to increase the transparency and engagement at renewal in general insurance and the rules require firms to:
  • disclose last year’s premium at each renewals to allow a comparison;
  • encourage consumers to check their cover and shop around; and
  • identify consumers who have renewed 4 or more consecutive times and give them additional prescribed messaging.
The FCA noted their close monitoring of the sector to make sure firms made the changes required had found that:
  • Admiral included inaccurate premium amounts in renewal documents issued to some customers by publishing last year’s quoted premium, before discounts were applied, rather than what the customer actually paid. Admiral agreed to contact customers who may have been given inaccurate renewal information.
  • RAC is the latest firm to agree to contact affected customers after the FCA found that their breakdown policy renewal documentation failed to display the prior and current year premiums and shopping around message as key information.
The FCA believes it is unacceptable that firms continue not complying sufficiently with the renewal rules, a year after the rules came into force.

FCA Board minutes: 21 and 22 February 2018
On 5 April, the FCA published its minutes from the FCA Board meeting held on 21 and 22 February 2018. The minutes set out the topics discussed at the meeting including the corporate responsibility annual update, approach to supervision and enforcement, Q3 2017/2018 quarterly performance report and the draft FCA Business Plan and budget for 2018/2019, among other topics.

In relation to the draft Business Plan and Budget for 2018/2019, the FCA Board approved the Annual Funding Requirement and Capital Budget for 2018/2019 and proposed external communications for the Business Plan for 2018/2019.

Annex B details a list of instruments which the FCA resolved at the meeting.

FCA Business Plan 2018/19
On 9 April, the FCA published its Business Plan for 2018/19 which sets out key priorities for the coming year. The priorities reflect the need for resources to be directed towards EU withdrawal due to its regulatory impact on firms and the FCA. The Business Plan also outlines seven cross sector priority areas where the FCA has identified the greatest potential for harm comprising:
  • Firms’ culture and governance which should drive behaviours and produce outcomes likely to benefit consumers and markets.
  • High-cost credit, building on the significant impact already made in the market.
  • Tackling financial crime, including fraud, scams and anti-money laundering to make the UK financial services sector a hostile place for criminals and a safe place for consumers.
  • Data security, resilience and outsourcing since technology plays a pivotal role in delivering financial products and services.
  • Innovation, big data, technology and competition which are driving change in markets.
  • The treatment of existing customers to ensure that they do not get less attention or receive poorer outcomes than new customers.
  • Long-term savings, pensions and intergenerational differences which reflects the changing UK population and their financial needs.
The Business Plan was published alongside the FCA's annual fees Consultation Paper, Sector Views, and a Discussion Paper on the FCA's evaluation framework.

FCA regulated fees and levies: rates proposals 2018/19 – CP 18/10
On 9 April, the FCA published a Consultation Paper (CP18/10) on its rates proposals for 2018/19, which allows the FCA to raise regulatory fees and levies to fund the FCA, Financial Ombudsman Service, Money Advice Service, Pension Wise service, Single Financial Guidance Body, and Illegal Money Lending (IML) expenses of HM Treasury.

The levies include, amongst other things, an increase of 3.2% to the annual funding requirement (AFR), bring it to £543.9m in order to maintain an even distribution of increases and decreases, and the budgeted cost of £2.7m for the ring-fencing implementation fee (RFIF).

Comments should be submitted on or before 1 June, 2018.

FCA Business Plan – Sector Views
On 9 April, accompanying its Business Plan the FCA published its Sector Views bring its collective intelligence together and give an overall FCA view of how each sector is performing. The information contained in these Sector Views is based on the data situation and the FCA’s view at mid-2017.

The general insurance and protection Sector View sets out that the FCA’s view that: ‘The general insurance and protection sector remains relatively stable as it adapts and evolves in a low growth environment. This environment is characterised by pressure on household budgets, rapid technological change, and strong competition in parts of the sector’.

The FCA have identified the following areas of focus across the sector:
Operational resilience IT outages or cyber-attacks on firms or market-wide systems could affect consumers through delays in claims settlement or placement of cover. They could also lead to a loss of confidence in the market, in the event of a market-wide outage. Cyber-attacks in the financial services sector are becoming more frequent and widespread. The issue is potentially made worse by the use of complex and legacy IT systems, outsourcing of operations and the growing transfer of data between firms.
Data security Unauthorised loss or disclosure of customer data, could include sensitive client data and payment card details, and affecting both individual and corporate customers.
Governance and culture - distribution chains Inadequate governance and oversight of appointed representatives by principal firms has resulted in mis-selling and poor service to retail and commercial consumers. The FCA’s 2016 thematic review (TR16/6) into principals and their appointed representatives in general insurance identified potential mis-selling and customer harm at a third of the firms we assessed. Over half the principal firms involved could not consistently demonstrate effective risk management and control frameworks to identify and manage the risks from their appointed representatives’ activities.
Regulatory arbitrage Recent insolvencies of insurers outside the UK have caused harm to retail and commercial customers. They have also created additional costs from Financial Services Compensation Scheme (FSCS) levies that are ultimately borne by consumers.
Financial crime (insurance fraud) Insurance fraud increases both the level of costs in the sector itself and in the higher premiums that consumers have to pay as a result. ABI members uncovered 130,000 fraudulent claims worth £1.32 billion in 2015.

The FCA’s areas of focus in the in the wholesale and commercial sectors include:
  • Market conduct and competition - Market practices that restrict access or limit choice can cause harm to consumers and compromise market integrity. Complex and opaque relationships between firms in the market can also restrict access and choice.
  • Employers’ liability traceability - Firms that fail to comply with Employers’ Liability (EL) Insurance tracing rules can also result in harm, particularly to vulnerable or elderly claimants, if they cannot trace former employers’ EL cover.
Claims management regulation: consultation on secondary regulations
On 23 April, HM Treasury (HMT) released a Consultation on the draft secondary regulations enabling the transfer of claims management regulation to the FCA, focusing on the scope of regulation and the FCA’s consultation requirements.

HMT is proposing that claims management companies (CMCs) will require separate permissions depending on the specific activities and sectors that they wish to operate in. Depending on firms’ specific business models, some CMCs may require just one permission, while other CMCs may require several permissions. The proposed permissions are:
  • seeking out, referring and identifying claims;
  • advising, investigating and representing in relation to personal injury;
  • advising, investigating and representing in relation to financial services and products;
  • advising, investigating and representing in relation to employment;
  • advising, investigating and representing in relation to criminal injuries;
  • advising, investigating and representing in relation to industrial injuries disablement benefit; and
  • advising, investigating and representing in relation to housing disrepair.
The government’s view is that the activities of seeking out, referring and identifying claims are consistent in nature across each sector, and do not require sector-specific competency or knowledge. For this reason, firms wishing to perform these activities will require one permission, regardless of which sector the activity relates to.

The proposed regulations form only part of the final Statutory Instrument (SI), the final SI will also cover the design of a temporary permissions regime to help firms adapt to the FCA regime.

Comments should be submitted by 1 June 2018.

New FCA data show 3.76 million complaints about financial services firms
On 19 April, the FCA reported that during the second half of 2017 a total of 3.76 million complaints were received, an increase of 427,032 on the first half of the year. Complaints about payment protection insurance (PPI) rose by 40% to 1.55 million, the highest level of complaints about PPI for more than four years.

In January 2018 firms paid out £415.8m in redress to customers who complained about PPI. This is the highest figure since March 2016 and takes the amount paid since January 2011 to £30bn.

Christopher Woolard, the FCA Executive Director of Strategy and Competition, stated that “when PPI is taken out of the mix, the numbers of complaints firms are receiving has remained stable. Firms should be doing all they can to reduce complaints and ensure they are treating customers fairly.”

Memorandum of Understanding between the FCA and the FSC Mauritius
On 24 April, the FCA published a Memorandum of Understanding (MoU) between FCA and the Financial Services Commission, Mauritius (FSC Mauritius). The MoU sets out the intention of the two Authorities to create a mutual assistance framework and enable information exchange between them to enhance their regulatory functions. The MoU is for the purpose of exchange of information and does not give the Authorities any enforceable rights and is effective from 10 April 2018.