FCA Risk Outlook 2019 - Insurance

The withdrawal of the UK from the EU is the primary area of concern for both regulators at present, with the focus for the FCA being on ensuring stability across the financial sectors post-Brexit through monitoring change and ensuring that the UK maintains its status as key figure in setting international regulatory standards.

Culture and governance continues to be at the forefront of consideration for the conduct regulator. In December this year the extension of SM&CR will conclude, with approximately 50,000 additional firms falling into the regime. Additionally we will see focus on promoting a “healthy” culture within firms and further work on ensuring that remuneration structures work to drive the right behaviours and fair outcomes for consumers.

There remains an emphasis on operational resilience, to ensure firms have appropriate controls to responsibly manage operations outsourced to third-party service providers and that firms have adequate mechanisms for change management (for example when upgrading IT systems). This year there will be more attention on how firms protect against cyber-attacks including the testing of systems using the CBEST intelligence based penetration testing methodology, which was pioneered by the Bank of England and is globally recognised.

In respect of more general financial crime, the FCA will seek to identify the types of fraud affecting different sectors and will continue to raise awareness of concerns in this regard through its ScamSmart initiative. Where anti-money Laundering (AML) is of concern, the regulator is motivated to improve detection through the use of intelligence gathering, data analytics and new technologies, using these tools to benchmark firm’s internal controls.

Later this summer the FCA will publish its report on a market study assessing pricing practices in both the home and motor insurance sectors. There will be a focus on fair pricing and product value across the general insurance sector also. These efforts seek to ensure the fair treatment of existing customers, who will also benefit from a possible upheaval of the cash savings market, which currently only tends to favour those customers that shop for the best rate 

To help gain and build confidence in the rise of algorithmic decision-making, the FCA seeks to investigate and identify whether such data-driven decision engines are able to promote a compliant and ethical use of data, leading to fair customer outcomes. There is a clear commitment to issue perimeter guidance in respect of the risks associated with cryptoassets and to continue to encourage innovation in the FinTech space. The FCA is also keen to embrace RegTech further, and will move forward with data exchange, technologies to improve AML and financial crime compliance and to drive better outcomes for vulnerable customers.

The FCA’s drive to embrace technological solutions is also apparent and the future of regulation has been highlighted as a priority. This includes looking at machine readable and executable versions of the Handbook and to help firms reduce the cost of compliance by utilising technology. Further future-gazing initiatives include annual statements on perimeter issues to help clarify and engage on these matters as well a statement in respect of the Duty of Care Discussion Paper. This discussion paper was issued last year with the aim of helping the FCA discharge its duties more effectively. 

Intergenerational differences features in the business plan once again, but this year the regulator will concentrate on broader exercise across sectors looking at generational cohorts and changing needs. The Financial Lives Survey will take place again in 2019 after a two-year gap. This provides the FCA with a wealth of consumer information and helps identify indicators of potential harm. We should also expect to see the publication of more detailed guidance and standards in relation to best practice for the treatment of vulnerable customers.

What are the implications for the general insurance market?

The main focus points were around dual pricing and fairness for loyal customers. In particular the year ahead is expected to bring:

• Further work to ensure pricing in the home and motor insurance market delivers fair outcomes for consumers. This will include publication of an interim report on the fairness of firms’ pricing practices (expected in Summer 2019), a feedback statement on fairness in pricing and product value, and an evaluation of the impact of renewal transparency rules introduced in 2017.
• Findings from the thematic review on the value in distribution chains and an assessment of how firms have responded to the Insurance Distribution Directive.
• Proposed rules regarding value measures reporting with a policy statement expected in Q3 2019 and publication of value measures by Q1 2021. 
• Monitoring of motor claim practices around the Civil liability Act and its effect on the cost of motor claims.
• A signposting service requirement for customers accessing travel insurance.

If you wish to discuss any of these themes, your plan for the year ahead or how we can help, please get in touch.