On 20 September 2023 the FCA published portfolio letters setting out its priorities for the insurance market for 2023-25. There were three letters, split by sector:

In each letter, the FCA notes supervisory action it has taken against firms where it has found significant failings, including in areas such as:

  • the continued sale of products not providing fair value;
  • paying away significant amounts of commission to third parties where it was not clear how those commission levels had been assessed as being consistent with fair value;
  • discriminatory pricing practices;
  • undervaluation of motor claims;
  • failure to implement general insurance pricing practices rules;
  • weak identification of vulnerable customers;
  • poor business interruption claims handling, and
  • instances of very long waiting times/settlement delays.

The letters set out that the FCA has four market-wide priorities, being:

1) Embedding the Consumer Duty - the FCA says that it will consider using its range of regulatory tools to assess the effectiveness of Consumer Duty implementation, which may include mystery shopping exercises across different sectors.

2) Governance and Culture - the FCA expects firms to assess and address their drivers of culture, considering leadership, purpose, governance and their approach to recruiting, managing and rewarding employees. See our recent blog post on non-financial misconduct here

3) Operational resilience and the increasing reliance on Third Parties - the FCA draws particular attention to the risks of cyber-attacks and the need for firms to ensure that they have adequate controls in place where information is held by third parties.

4) Improving oversight of Appointed Representatives (ARs) - the FCA says that it will be testing that firms are properly embedding the new rules across the AR regime and increasing and improving its engagement with principal firms and other stakeholders.

Each letter also details sector-specific priorities. 

For example, in the personal and commercial lines (e.g. home and motor insurance) sector letter, these include a focus on price and value, consumer support, claims, barriers to access, sales practices and governance, culture and non-financial misconduct. In the life insurance sector letter, there is an at times similar focus on price and value, consumer support and service quality and effective customer journeys. The letter also focuses specifically on supporting customers in financial difficulty, the effectiveness of outsourcing oversight, the suitability and value of life protection products and sustainability-related investments and disclosures. 

The FCA states that a significant part of its activity over the next two years will be to test firms against its priorities and expectations. There is a warning that it will continue to use data to identify outliers and intervene where firms are not meeting applicable rules and expectations. The FCA will also use the Senior Managers and Certification Regime to engage directly with accountable individuals on areas of concern. Firms are therefore encouraged to review the relevant letter and take action where necessary.