As part of a series of sector-focused Consumer Duty letters, the FCA has written to firms in the Life Insurance sector to help them implement and embed the Consumer Duty effectively. 

In common with the other letters, the FCA provides general information to remind firms of the implementation timeline and key elements of the Consumer Duty, but also focuses on how it applies specifically to firms in the relevant sector, the FCA's associated expectations and practical examples of good and poor practice.

The letter is addressed both to life insurers themselves and to their FCA-regulated outsourced services providers (OSPs). A key message is the need for life insurers to engage early and proactively with their material OSPs, and material OSPs with their client firms, in order to define requirements and agree timelines for delivery of the regulatory change required.

The letter includes feedback from the FCA's review of implementation plans and additional guidance on how the Consumer Duty applies to life insurers and their FCA-regulated OSPs. The FCA sets out key priority areas for firms to consider, in overview:

1) The risk arising from the dependency of life insurers on OSPs for people, systems and processes to deliver the regulatory changes required. Early, proactive two-way engagement is described as essential to ensure sufficient lead time to implement required changes. Life insurers should also be able to demonstrate how they have assured themselves as to the adequacy of customer servicing provided by OSPs, including alertness to vulnerability considerations.

2) Due regard to the volume and complexity of closed product business, which is an inherent feature of the sector. Firms have longer to implement the Consumer Duty for closed products (until 31 July 2024) but the FCA issues a strong warning against complacency. Firms are expected to take early action to prioritise reviewing products and services with higher risk of consumer harm. Examples of poor practices include firms presenting information in a way that exploits behavioural biases given the long-term nature of products and imposing unreasonable barriers in customer journeys.

3) Actions to support consumers in pensions and retirement decision-making. Rather than imposing new prescriptive rules, the FCA thinks that it is best left to firms to consider the most appropriate way of supporting consumers in their decision-making, tailoring communications based on their customer base with a focus on ensuring consumers achieve good outcomes. The FCA plans to ask firms about their progress and findings from activities such as customer journey mapping and communication reviews. In the context of equipping customers with relevant information to make effective decisions, the FCA thinks some firms are being too risk averse when engaging with the advice/guidance boundary or choosing not to engage with the issues presented by the boundary at all.

4) Alongside OSPs, life insurers should also be engaging their distributors as another significant third party dependency. Life manufacturers and distributors need to work together and share information to perform their own roles effectively and deliver good outcomes. The FCA intends to engage with life insurers about their preparedness to meet the April 2023 milestone for information sharing with distributors.

Overall, the letter constitutes an essential additional resource for firms in the sector preparing for the Consumer Duty. In order to avoid leaving implementation activities close to the deadline, the FCA expects firms and their OSPs to focus on difficult areas immediately and engage early with each other and any other third-parties.