General insurance conduct supervision takes shape
Thematic reviews are not new but, since April, the production of thematic review reports by the FCA is.
The first and second (perhaps tellingly) related to the supervision of general insurance. Not only do they confirm the FCA's interest in conduct regulation of consumer insurance but they also show how the new regulator will conduct and use thematic work.
We circulated an alert to our consumer insurance clients highlighting the key features of the report and the implications for all general insurers writing consumer business. TR13/1 made clear the MLEI report showed what firms "can expect from the FCA’s approach to general insurance supervision". TR13/2 confirms the FCA's view that "thematic work is a fundamental part of our supervisory approach". Both the MLEI and MPI reports follow on from the FSA's December 2012 announcement about its work on general insurance add-ons and, in particular, competition in the market and its link to consumer outcomes. The former contains useful details on reforms required in the MLEI market (particularly moving away from opt-out sales practices) but the latter, shorter report on MPI appears to offer little of substance; instead, reminding firms in the title and elsewhere of the well-established principle of fair treatment of customers. The MPI report notes that insuring their mobile may often be the first time a young consumer buys insurance and that the FCA wants their experience to be positive at all stages of the product lifecycle.
Ignoring the potentially significant suggestion that the FCA is now concerned with consumer experience and not just consumer outcomes, the MPI report repeats well-rehearsed mantras about product lifecycles and MI. If any of it is news to firms, the regulator will be very disappointed. And that, I anticipate, is the key purpose of these thematic reviews: the FCA repeats key messages to a particular sector or about specific products and then expects standards to improve appreciably by the time of their next review 'check up'. The MPI report says: "We want all MPI firms to act on our findings now… We may revisit this market in the future to assess how firms have responded." In this way, thematic reviews are replacing or complementing the 'Dear CEO letter' – on which I have commented before – as a regulatory tool.
The report serves as a reminder on the fair design, selling and administration of MPI and the need to ensure this during the lifecycle of product governance, design, terms and conditions, sales, claims and complaints handling. There is a reminder about the importance of MI and a few choice examples of bad conduct: a 70% over-turn rate where a two stage claim process allowed for claims to be declined at first but then (by and large) to be paid on appeal; and MI showing 41% of claims relating to theft declined. Firms found in due course to have disappointed their customers' expectations of product performance and service will find this report quoted back at them.
If news reports are accurate, an MPI firm will shortly be fined by the FCA; sending a clear message from the FCA on what not to do. The exhortation to up their game (contained in the thematic report) combined with the warning (issued by making an example of someone) are now familiar regulatory tools with which general insurers must become familiar.
It is also noteworthy that the MPI review was prompted (in part) by the FOS which found MPI to be the product with the highest complaint uphold rate. After perceived failings by the FSA to react quick enough to FOS concerns about PPI, the FCA is moving faster on MPI. The thematic approach is intended to keep the conduct regulator 'ahead of the curve'.