Insurance - Q1 2023
Consumer Duty FCA Dear CEO letter - General Insurance (GI) and Pure Protection sectorsFirms need to ensure that: Product governance Customers are not at risk of purchasing poor-value products and/or services that do not meet their needs.
Communication with consumers
Claims processes and outcomes
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What management should focus on Management should focus on aligning the requirements of the Duty with existing work in these areas:
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Consumer Duty FCA Dear CEO letter - Life insuranceFirms need to ensure that – Outsourcing and reliance on outsourced service providers (OSPs)
Existing products
Volume and complexity of closed products
Supporting pensions and retirement consumer decision-making
Life manufacturers and distribution
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What management should focus on The FCA highlighted that several firms have recognised they need to significantly enhance their ability to monitor customer outcomes using meaningful management information (MI). Firms should give attention and resource to MI development to monitor outcomes effectively. The FCA expects firms and their OSPs to focus on difficult areas and engage early with each other and any other third parties. The ability to demonstrate robust oversight over OSP arrangements should be an area of focus for firms and their Boards. |
The FCA Handbook Notice No.108Product Governance for Overseas Insurance Products The FCA made changes to disapply certain PROD 4 rules for overseas distribution of GI and pure protection products. The relevant instrument for the change came into force on 31 March 2023. Products for overseas distribution The FCA removed products distributed exclusively to customers outside the UK from the scope of the PROD 4 rules. Products for both UK and overseas distribution For products distributed both within the UK and overseas, the rules will continue to apply but without the requirement for firms to consider the impact of distribution to overseas customers on product value. |
What management should focus on Management may need to recognise this change in their product governance arrangements and subsequent fair value assessments. |
The PRA Insurance Stress Test 2022 feedbackThe PRA published the results and thematic observations of their Insurance Stress Test launched in May 2022 (IST 2022). 54 insurers participated including 16 life, 17 general insurers and 21 Lloyd’s syndicates. Scenarios included increase in longevity (for LIs) and insured natural catastrophes (for GIs). The results indicated that the UK insurance sector is resilient to the PRA-specified scenarios. In total, based on the participants, the life insurance sector’s solvency capital requirement (SCR) coverage fell from 162% to 123% due to credit downgrades, property shocks, and longevity improvements. The general insurance sector’s SCR coverage remained above 120% in all scenarios with the primary mitigant was reinsurance. |
What management should focus on The PRA expects the results of this exercise to be used in board discussions and to encourage visibility and engagement in stress testing at board level. Management should assess whether the findings apply to their firm and put an action plan in place. The PRA expects the results of this exercise to be used in board discussions and to encourage visibility and engagement in stress testing at board level. Management should assess whether the findings apply to their firm and put an action plan in place. |
The PRA Chief Executive Officer’s speech on Solvency II reformsSam Woods spoke about the next steps for reforming Solvency II in the UK (Solvency UK). Competitiveness and growth The speech summarised some of the planned changes for Solvency UK:
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What management should focus on Management should follow the developments on the Solvency II reforms and consider the potential impact on their firm. |
Introducing a UK Insurance Resolution RegimeIn January 2023, HM Treasury published its consultation paper setting out proposals for the introduction of an Insurance Resolution Regime (IRR) for the UK insurance sector. The regime would apply to any insurer identified as systemically significant in the event of failure. When will resolution apply? (Re)insurers must meet four resolution conditions before being placed into resolution. These are set by the PRA and dependent on assessments performed by them. Powers possessed by the PRA and BoE Resolution plans are currently assessed through the PRA’s existing future exit planning framework; however, the regime introduces new powers including the authority to remove or replace directors and senior managers of an insurer and prohibit payments of dividends to shareholders, amongst others. What happens when resolution conditions are satisfied? BoE can exercise four stabilisation options: transfer to a private sector purchaser; establish a bridge institution; bail-in; and/or temporary public ownership. The PRA will continue to manage the (re)insurers recovery plan and exit plans, this has been cited as a top priority for the PRA in 2023. A more detailed article on the IRR can be found here. |
What management should focus on Management should follow the developments of this consultation paper and assess the impact of the proposed changes on their firm. |
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