In December, the FCA published its Policy Statement on Simplifying Insurance Rules, introducing greater flexibility around the timing of Fair Value Assessments (FVAs). The ABI is working with FCA and other trade associations including BIBA on how we can ensure that expectations for everyone involved in the distribution chain are as clear and simple as possible. If you’ve wondered ‘what does the regulator actually want?’, this blog aims to offer a clear, regulator led steer on how firms should approach fair value in practice.
It’s a pleasure to write my first blog for the ABI. It was suggested I should title this ‘Joe Blogs’, but I decided to go with something a bit more to the point.
Over the past two years I’ve had the pleasure of being able to get out and engage directly with the insurance industry. As someone who has an intricate knowledge of the Handbook, and dare I say interest in it too, I find it particularly helpful to hear about how our rules are being applied in practice. Through this interaction I’ve heard a lot about your understanding of the rules, what works for you and what isn’t working so well.
The UK is a world leader and a global hub for insurance, with unrivalled expertise in underwriting complex and specialty risks, and handling risks from all over the world. Maintaining this position with a set of regulations that is fit for purpose is paramount.
I want to focus on two areas in particular – our rules on fair value, and simplifying our Handbook.
Fair value – testing outcomes, not process
The topic that comes up most often in my discussions with firms is product approval and fair value assessments. And I think it’s right to say that, underlying a lot of challenges firms have raised with me is a single question – what does the FCA want? Customers must be confident they’re getting fair value if we want to build trust in the insurance market. And at the heart of achieving this is better outcomes for people. So I want to emphasise first that we’re mainly interested in those outcomes, not process.
The Consumer Duty sets high standards of consumer protection across financial services and requires firms to put their customers' needs first. It’s focused on customers getting good outcomes from their products, and our product governance rules on fair value are an important means of ensuring those outcomes. A good product approval and fair value assessment will ensure that:
- Products meet the needs of customers.
- Prices are a fair reflection of the benefits and services provided.
- Where the first two are not being met, actions are identified and taken.
Fair value assessments should not be tick-box. We want you to make sound judgements about your products, including taking clear actions where products are not delivering good outcomes for customers. We are more interested in what decisions were made and why, than we are in how they were made. And that means you can be proportionate and flexible; in fact, that’s what we want to see. We want you to focus time and resources on the products with the biggest risk of poor outcomes, to make sure those risks don’t crystallise, or, if they do, to take actions.
Focusing on products with the highest risk could mean that assessments and reviews for lower risk products are more informal. Let me address the suggestion that manufacturers need to collect extensive data from distributors every time they review the product. This is not the case. Collecting information for an existing, low risk product may be as simple as asking a distributor to confirm ‘no change’. Again, it’s about outcomes first and foremost.
We recently ran a webinar where we covered some of the most common myths and misconceptions we’ve heard. Here it is, if you missed it.
It’s important that the aim of delivering good outcomes does not get lost amongst worries about making sure your processes are compliant.
We want you to challenge yourselves – are your products truly providing good outcomes and meeting customer needs at a fair price. Take action if they’re not. Do so, and you’re on the right track.
Simplifying the rules
Our product governance rules, combined with the Consumer Duty, are a powerful tool to ensure customers receive good outcomes. With those in place, I’ve been interested in regulations that are redundant or causing unintended impacts, holding my first roundtable discussion with firms on this subject back in 2023. We’ve had lots of engagement since then and I hope this approach to policy-making feels collaborative. It’s a formula we’ll look to repeat.
We’ve listened to you. And in PS25/21 we’ve made a number of changes.
Removing the requirement for product reviews to be conducted at least every year will allow firms to determine an appropriate review frequency based on risk. This is a good example illustrating that we are interested in what outcomes you are delivering rather than precisely how you do so.
When we consulted on these changes we had over 600 responses. It was great to see so much engagement from the industry. As I hope we made clear in the Policy Statement, we don’t see this as ‘mission accomplished’.
We are committed to removing or changing rules which are out of date or disproportionally burdensome to firms, with the goal to further enhance the international competitiveness of the UK insurance industry and support its growth.
PS25/21 we set out new areas of work we will consider into 2026 and beyond. We expect to have further engagements (such as roundtables) in early 2026. I’m looking forward to discussing these potential future changes with you all.