In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 for financial professionals.
Key developments in 2018
As predicted in 2017's insurance review, 2018 came to be dominated by a focus on pension transfer advice. Around £1.3trn remains in the final salary pension market and, following pension freedoms, around one in three investors receiving a transfer value quote proceeds to transfer (as opposed to one in 10 previously).
The Financial Conduct Authority (FCA) has understandably been busy in this area, with its oversight culminating in policy statement 18/6, published in March 2018, and policy statement 18/20, published in October 2018. This provided us with a clearer idea of the FCA's expectations of firms offering advice in this area. Key points to be aware of include: a need for the advice process to include consideration of destination assets following transfer; separate assessment of attitude to pension transfer risk from attitude to investment risk; the need to challenge a client's investment objectives against their needs; and the introduction of the new Transfer Value Comparator calculation.
While the end of the year has produced some jitters, markets are still holding up relatively well (although we note that, worryingly, a large number of transfers therefore took place when the markets were at or close to record highs). It might be that we do not see any significant claim volume here until either markets drop or the more profligate transferees have exhausted their pension assets. If and when this happens, expect the FCA to be involved, with any firm adopting anything even resembling a commoditised approach being firmly in the cross hairs.
What to look out for in 2019
We will try to get through this section without mentioning Brexit too often – perhaps a hard task but we at RPC enjoy a challenge! In brief, the impact that any terms of withdrawal could have on financial regulation could be significant, especially if we see an end to harmonisation.
Beyond this, one of the FCA's key concerns at the moment appears to be transparency (not least because of pressure coming in the form of MIFID II). This dovetails with its interest in investment management, as discussed in its business plan for 2018–19, under which investment management is one the FCA's stated cross-sector priorities.
The FCA has stated that, by the end of 2018–19, it intends to publish research that looks at the rise of passive investment management in the UK. This should give us an interesting insight into the regulator's focus and the standards it expects of this sector following the implementation of MIFID II and Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation. In very simple terms, the concerns the regulator has around investment funds involve the use of poor-quality products, inadequate disclosure and the risk of financial crime, and we think it's fair to say that it views this area as being one with a potential lack of consumer protection. It could also be that we see some pronouncements from the regulator on expectations of firms using the “agent as client” business model.
As with pensions, this is another area where claim volumes are unlikely to increase significantly unless and until we see market decreases.
Authored by David Allinson.
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