Increasing transparency and engagement at renewal in general insurance

Transcription

1 Brank Ltd AMII Autumn 2016 Update Increasing transparency and engagement at renewal in general insurance In December 2015, the FCA cnsulted n new rules and guidance fr general insurance renewals. These prpsals were intended t address cncerns abut levels f cnsumer engagement and the treatment f cnsumers by firms at renewal, and the lack f cmpetitin that results frm this. The FCA prpsed new rules acrss all persnal lines general insurance markets requiring firms t:- disclse last year s premium at each renewal; include text t encurage cnsumers t check their cver and shp arund fr the best deal at each renewal; and identify cnsumers wh have renewed with them fur cnsecutive times, and give these cnsumers an additinal prescribed message encuraging them t shp arund. In additin the FCA prpsed guidance n hw firms can maintain recrds t demnstrate cmpliance, including keeping a recrd f premiums and nn-handbk guidance t help firms meet their bligatins twards cnsumers at renewal including:- prviding apprpriate infrmatin and issuing clear cmmunicatins t cnsumers at renewal and hw firms shuld treat cnsumers wh want t switch r cancel, and the apprpriateness f fees r charges fr cancelling r renewing plicies. The FCA published their plicy statement utlining the new rules and guidance in August Rule Changes The FCA have decided n the fllwing changes t their rules which will cme int effect frm 1 April Last Year s Premium Firms must disclse last year s premium n all renewals. The ttal premium payable ver the year shuld be displayed; hwever firms shuld als shw the mnthly premium where the custmer pays mnthly. If there has been a change part way thrugh a plicy year (mid-term adjustment) then the premium shwn must be an annualised premium taking int accunt the change. Firms can include wrding t explain the annualised premium (where a mid term adjustment has ccurred) and can als include wrding t explain any price increases. Shpping Arund Messages The FCA have changed the renewals rules s that n each renewal f a plicy f 10 mnths + duratin the custmer shuld be prmpted at renewal t cnsider their cver needs and t Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

2 Brank Ltd AMII Autumn 2016 Update als be encuraged t shp arund. The wrding is nt be prescriptive but must still be prvided in writing. The FCA has suggested psing this as a questin such as:- Have yu checked that yur insurance cver still meets yur needs? Have yu cnsidered shpping rund t find the best deal fr the cver yu want? Frm year 4 nwards as well as including a prmpt t custmers t cnsider their cver and whether they shuld shp arund the FCA requires Firms t include the fllwing prescribed wrding in a prminent place n the renewal ntice:- Yu have been with us fr a number f years. Yu may be able t get the insurance cver yu want at a better price if yu shp arund. The FCA require that this disclsure be presented clearly, accurately and prminently in renewal ntices, in a place that makes it easy t cmpare with the renewal qute. They als expect firms t take int accunt results f their cnsumer trials, which shwed that disclsure is mst effective when n the frnt page f a renewal ntice. Recrd Keeping Firms must ensure that they keep apprpriate and adequate recrds t ensure that they are able t cmply with the new rule requirements. In additin these recrds must be sufficient t allw the FCA t mnitr their cmpliance. 2. Nn-Handbk Guidance Imprving General Insurance Renewal Practices The FCA has published finalised guidance in relatin t renewals. A summary f that guidance is as fllws:- firms need t cnsider the language in their renewal letters, and cnsider whether this culd discurage the cnsumer frm checking that the plicy is apprpriate r frm shpping arund. Firms shuld particularly lk at this if the prpsal is t autmatically renew the plicy, as the custmer culd read the ntice as indicating that they d nt need t take actin. Each time that a cntract is renewed, a new cntract is created which means that firms need t fllw existing rules and guidance at each renewal pint. Fr instance, the apprpriate infrmatin rule at ICOBS 6.1.5(R), states that: A firm must take reasnable steps t ensure a custmer is given apprpriate infrmatin abut a plicy in gd time and in a cmprehensible frm s that the custmer can make an infrmed decisin abut the arrangements prpsed. Firms shuld take particular cnsideratin int the fllwing:- an aut-renewal term is cnsidered t be an imprtant feature f a cntract. Firms shuld cnsider whether and hw they are prviding cnsumers with apprpriate infrmatin abut the aut-renewal term, including what the cnsumer shuld expect Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

3 Brank Ltd AMII Autumn 2016 Update and hw it will perate. If an aut-renewal term is included in the preceding insurance cntract, then the firm shuld cmmunicate with the custmer abut hw they intend t prceed. A cmmunicatin culd be by way f prviding a renewal ntice. The apprpriate infrmatin rule als requires that the infrmatin is prvided in gd time. Firms shuld cnsider whether their custmers have enugh time t review their renewal dcumentatin, make an infrmed decisin abut it and take apprpriate steps, which may include shpping arund. Firms shuld cnsider hw they are cmmunicating infrmatin abut changes t plicy terms and cnditins, s that cnsumers can make an assessment abut whether the plicy remains suitable. Firms shuld take int accunt Cnsumer Insurance (Disclsure and Representatins) Act 2012 and shuld cnsider the needs f their custmers and whether it is realistic t expect the cnsumer t remember all f the infrmatin they previusly prvided and the questins they were asked. Firms shuld cnsider whether and hw they are prviding cnsumers with infrmatin abut their ptins fr renewal. This is particularly imprtant fr autrenewal cntracts, where a cnsumer may have t take active steps t make clear their intentin t switch t anther plicy. When cnsidering what infrmatin t prvide cnsumers, firms shuld fcus n the practical steps the cnsumer wuld take. Firms shuld cnsider what ptins they prvide t cnsumers s that they can express their intentin t switch r cancel. Firms may als wish t cnsider whether it wuld be useful t the cnsumer t be able t pt ut f aut-renewal when entering a cntract. Once the plicy has renewed, cancellatin rights apply. A firm must prvide a cnsumer with infrmatin n the right t cancel a general insurance plicy, as set ut in ICOBS 6.2.5(R). The infrmatin must be prvided in gd time befre the cnclusin f the cntract. A cnsumer s right t cancel is within 14 days fr a general insurance cntract, unless ne f the exceptins applies r it is a pure prtectin r payment prtectin cntract. Within this perid, there are limitatins n what the firm can require a cnsumer t pay. The FCA expect firms t be able t evidence their cmpliance with ur principles and any applicable rules abut fees and charges, including ur principle f treating custmers fairly. The FCA specifically call attentin t the rule set ut at ICOBS and Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

4 Brank Ltd AMII Autumn 2016 Update FCA Cmplaint Handling Rules The new rules came in t effect frm 1 July The main changes were:- Extensin f infrmal cmplaints frm clse f next business day t clse f third business day; All cmplaints t becme reprtable including thse clsed within 3 business days; Summary reslutin template t be sent with all cmplaints clsed within 3 business days infrming clients f the right t refer their cmplaint t the FOS. The FCA has als implemented new cmplaint reprting. Fr firms with less than 500 cmplaints a year the changes include:- General Des the return cver mre than ne entity Yes/N If Yes list the FRN numbers We wish t declare a nil return Yes/ N Ttal cmplaints utstanding at the reprting perid start date Ttal number f cmplaints pened during the reprting perid This has nt changed. Table 1 cmplaints pened Ttal Advising, selling and arranging Infrmatin. Sum/charges r prduct perfrmance General admin/ custmer service Arrears related Other Insurance and Pure Prtectin Prperty The main change abve is that the prduct is nw specified and the secnd cmplaint categry has changed t include prduct perfrmance. Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

5 Brank Ltd AMII Autumn 2016 Update Table 2- Cmplaints clsed, upheld and redress Within 3 days 3 days t 8 weeks Over 8 weeks Ttal clsed Ttal upheld Ttal redress paid fr upheld cmplaints Ttal redress paid fr nt upheld cmplaints Ttal redress paid Ttal insurance and pure prtectin The main changes are:- within 3 days has been included; 4 week timescale has been remved; and Redress is nw split between upheld and nt upheld cmplaints. Table 3 Cntextualizatin metrics new infrmatin Number f plicies in frce at reprting perid end date (insurers). Number f plicies sld within the reprting perid. Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

6 Brank Ltd AMII Autumn 2016 Update FCA Appinted Representative Thematic Review Fllwing identified cncerns highlighted I the FCA Business Plan, the FCA has undertaken a detailed thematic review int firms using appinted representatives in the general insurance market. 1 Methdlgy The FCA split their review int three phases:- Initial nline survey f 190 Principals perating a netwrk f appinted representatives primarily in the general insurance market. This was t gain insight int their business mdels, size, AR activities, gvernance structures, custmer numbers, prduct types, sales methds and revenues; Desk based analysis f 15 Principals frm its sample using a risk based apprach t ensure representatin f a diverse range f business mdels, prducts distributed, sales methds and sizes f AR netwrks. The FCA requested and reviewed further infrmatin t gain a greater insight int their businesses and activities f their appinted representatives. Finally the FCA visited 14 f the 15 Principals selected and 25 f their appinted representatives. This invlved interviewing senir management and staff, reviewing plicies and prcedures, cntractual dcumentatin, custmer files and listening t sales calls. 2 Findings The FCA have stated that the issues identified were serius and widespread and shwed that ver half f the principal firms did nt fully understand the risks arising frm their AR activities r were able t demnstrate that they were cmplying with their bligatins t cntrl and versee their activities. In five f the 14 firms visited the FCA identified material risks t custmers arising frm pr practices. This resulted in the regulatr taking early supervisry interventin actins in the public interest. The findings fall under three main headings: Business Mdels and Risk management; Gvernance and Oversight; Due diligence and appintment; Set-up and cntracting; Onging versight and terminatin; and Custmer Outcmes. 2.1 Business Mdels and Risk Management In this part f the review the FCA assessed whether Principals had cnsidered the impact f appinting ARs n their business and cre activities and whether they had put in apprpriate Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

7 Brank Ltd AMII Autumn 2016 Update risk management framewrks t enable them t manage the risks assciated with appinting ARS. In particular they cnsidered whether these principals culd demnstrate that they:- understd the nature, scale and cmplexity f the risks arising frm the activities f their ARs and, in particular, the risks these activities presented t custmers; had apprpriately assessed these risks when deciding t appint ARs; and had taken reasnable steps t put in place an apprpriate risk management framewrk t identify, assess and manage the risks their ARs presented t their business and t custmers. The FCA fund the fllwing:- Half f the Principals culd nt demnstrate that they had cnsidered hw their ptential ARs activities aligned t their existing activities and whether they had adequate resurces in place t versee these ARs and enfrce cmpliance with the AR cntract and regulatry requirements; The majrity f the 15 Principals culd nt demnstrate cnsistently that they had taken reasnable steps t assess hw the appintment f the ARs wuld impact their current business mdel and cre activities. This included assessing whether they had adequate resurces t versee their ARs. This generated a significant risk t bth the Principal and their custmers and in many cases the Principal had nt recgnised this risk; Five firms in the sample acted primarily as whlesale insurance intermediaries distributing their prducts t custmers via ther authrised firms. Hwever they had taken n ARs t distribute their prduct directly t custmers and did nt appear t have recgnised the additinal risks and their respnsibilities in the sales prcess. Furthermre three f these did nt recgnise that the ARs activities were part f their wn regulated activities r were capable f ensuring that the sales made were cmpliant; The majrity f firms in the sample did nt appear t have cnsidered the full csts f perating a cmpliant AR netwrk and as a result did nt have adequate r sufficient resurces in place bth financial and nn-financial; Many f the Principals had grwn their netwrk rapidly and culd nt demnstrate that they had sufficient peple with the apprpriate skills, knwledge and expertise t manage the risks that this grwth presented. Furthermre sme had altered r bradened their mdel as they grew but had nt made any changes t manage the additinal risks that this psed; and Three f the Principals perated an umbrella netwrk where the primary purpse f the business was t perate a netwrk f ARs and prvide a cmpliance service t these ARs. These principals did nt always have full knwledge r cntrl f the Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

8 Brank Ltd AMII Autumn 2016 Update ARs activities and culd nt cnsistently demnstrate that they were meeting their versight bligatins including mitigatin f risks t custmers. 2.2 Gvernance and Oversight The FCA review cnsidered whether the Principal had put in place apprpriate gvernance and systems and cntrl framewrks. This was split int three main areas:- the initial appintment f the AR, the set-up and cntracting f the relatinship and n-ging versight f their activities Due Diligence and Appintment There are three cre elements that a Principal shuld asses when cnsidering appinting an AR:- Impact n the Principal; Slvency and suitability f the AR; and Adequacy f cntrls and resurces. Impact f the Principal The FCA fund:- The majrity f Principals had nt cnsidered the impact f taking n ARs n their wn business; The had nt taken a risk-based apprach fr the appintment and nging mnitring f ARs and generally applied a n-size fits all apprach withut taking int accunt the specific activities being perfrmed by the AR and resulting risks; The level f due diligence was generally limited. Examples f areas nt addressed were as fllws:- The fit f AR s with the Principals business mdel; Type f prducts being sld, sales prcess and methd f sale and the needs and risks t custmers; Remuneratin f sales agents; Additinal csts f appinting an AR; The experience and capabilities f the AR and its management; Cnflicts f Interest in appinting the AR; Availability f staff with the right skills t mnitr and versee the AR; Any relatinship with parties in the value chain which culd prevent the Principal frm verseeing the AR prperly; and Their wn experience, knwledge and capabilities. Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

9 Brank Ltd AMII Autumn 2016 Update Slvency and Suitability f the AR The FCA fund that mst Principals had carried ut sme basic checking prir t cntracting with the AR hwever this tended t be a tick bx peratin fcused n narrw financial measures with n real understanding f the suitability f the AR. In additin this was ften nly undertaken at appintment and nt n an nging basis. The assessment f the slvency and suitability f the AR was usually fcused exclusively at the legal entity level with little checks being made n the wners r key senir managers at appintment r n an nging basis. Adequacy f cntrls and resurces The majrity f firms had little r n evidence that they frmally assessed their wn systems and cntrls and resurces when appinting ARs and half did nt understand this requirement Set up and cntracting The FCA fund:- Sme cntracts were nt always fully cmpliant. In many cases they were generic and failed t capture the scpe, nature f activities being perfrmed. Often they did nt include apprpriate parameters and limitatins arund these activities; In sme cases where the cntract was cmpliant it was nt actively used as a basis fr verseeing the ARs activities and relatinship; ARs activities were nt apprpriately categrised and the FCA fund many examples where the verall set-up f the AR relatinship was nt cnsistent with the activities being perfrmed. This included a number f IARs f Principal firms perfrming activities utside f thse permitted fr an intrducer; Where an AR has mre than ne Principal a multi-principal agreement was nt always in place; One firm ut f the 15 reviewed did nt have PII insurance in place fr its ARs; and Almst all ARs whse primary activities were general insurance had nly appinted ne apprved persn. The requirement is that all directrs/partners are t be apprved persns. It is nly where general insurance is a secndary activity that nly ne apprved persn is required. Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

10 Brank Ltd AMII Autumn 2016 Update 2.3 Onging Oversight and Terminatin The FCA fund:- The majrity f Principals did nt have adequate resurces in place t mnitr and versee their ARs activities and enfrce cmpliance with the cntract and regulatry requirements. These firms ften lacked sufficient staff with the necessary skills, knwledge and expertise and fund that many f the individuals with respnsibility fr appintment and mnitring f ARs had little r n regulatry knwledge r training; There was a lack f clear plicies and prcedures and insufficient supprt t enable staff t perfrm their versight rle effectively; Half f the Principals failed t separate nging mnitring frm management f the cmmercial relatinship with their ARs. In sme cases the same persn was respnsible fr bth creating a ptential cnflict f interest; Firms had nt cnsidered the adequacy f resurces as their AR netwrk grew; Effectiveness f mnitring framewrks varied widely. The majrity f firms culd nt demnstrate that they had used a risk based apprach t mnitring and cnsider the specific risks that the AR psed. In many cases a ne size fits all apprach was used. In additin many firms fcused their mnitring n training and cmpliance f the individual sales representatives and did nt have effective prcesses t mnitr the fllwing:- Whether the AR and senir management cntinued t be fit and prper; The financial psitin f the AR; The quality f the sales prcess; The quality f advice given t custmers; Key perfrmance indicatrs; Reward and incentive plicies and any cnflicts f interest; and Cmpliance with the terms and restrictins set ut in the AR cntract. Mnitring undertaken by the majrity f firms was nt sufficient t apprpriately identify areas f ptential custmer detriment and where issues were identified apprpriate actins were nt taken. There was an ver reliance n IT systems with clearly defined prcesses and prcedures as the primary means t cntrl ARs activities; FCA als fund instances were firms had taken n ARs whse activities were nt cnsistent with their ther ARs r had allwed certain ARs t perate utside f nrmal systems hwever they had nt changed their cntrls t allw fr this; The majrity f Principals did nt have adequate and apprpriate management infrmatin in place t identify key risks and trends within their AR netwrk; Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

11 Brank Ltd AMII Autumn 2016 Update There was little MI in place t mnitr sales incentives and targets and many f these schemes psed a risk f unfair treatment f custmers. Often this was exacerbated where the Principal did nt have adequate management infrmatin n cmplaints and claims; Financial checks and mnitring visits was lw; One f the key issues identified was the imbalance in the AR relatinship ften where the AR was significantly larger entity and wned the custmer relatinship. In sme cases the AR was able t dictate the terms f engagement with the Principal in a way which raised material risks that the Principal wuld nt be able t effectively versee the activities f the AR; Mst Principals regarding training an cmpetence f sales agents as imprtant and this was an area f fcus hwever the quality varied widely and in sme cases the training heavily fcused n prduct knwledge and sales prcess with n cnsideratin fr vulnerable custmers and cmplaints; Principals need t ensure that when an AR cntract is terminated that need t take apprpriate steps t mitigate any risks t custmers and that they cmplete any utstanding regulatry requirements and bligatins. 2.4 Custmer Outcmes The FCA expect all firms t be able t demnstrate that fair utcmes fr custmers is at the heart f their business hwever this review revealed that the majrity f Principals were nt able t demnstrate that custmers f their ARs were cnsistently receiving fair utcmes. Main issues were:- Mst Principals did nt exercise effective cntrl and versight f their AR sales practices leading t risks f custmer detriment. The FCA reviews fund that there was evidence f serius ptential shrtcmings and in a limited number f cases they fund clear evidence f actual custmer detriment. These shrtcmings had ften nt been identified by the Principal; Less than a quarter f the Principals culd evidence apprpriate pst sale prcesses supprted by cmplaints and claims MI and rute cause analysis; There were shrtcmings in the understanding and arrangements required t perate risk transfer effectively with ARs and in a number f cases this resulted in client mney nt being held crrectly in line with CASS rules which pses a risk t custmers prtectin; The FCA fund significant issues and shrtcmings with the sales prcesses and practices f travel insurant, warranty insurance and GAP. Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and

12 Brank Ltd AMII Autumn 2016 Update 3 Actins The FCA expect Principals t take the fllwing actins:- cnsider the impact f ARs n their wn business mdel and ability t meet threshld cnditins and t assess the slvency and suitability f their ARs including cnsidering wners, directrs and partners; take reasnable steps t put in place an apprpriate risk management framewrk t identify and manage the risks ARs present t their business; put in place cmpliant cntractual arrangements with their ARs which clearly set ut the scpe f the activities permitted and prvide a suitable basis fr effective versight. Principals must als establish whether the AR has multiple principals and where this is the case ensure an apprpriate Multi-Principal agreement is in place; t have adequate cntrls ver their ARs regulated activities and t have adequate resurces in place t mnitr and enfrce cmpliance. In frmulating these cntrls firms shuld assess the nature, scale and cmplexity f the business, the diversity f peratins including gegraphical, the vlume and size f its transactins and the degree f risk; ensure that the ARs are fit and prper t deal with custmers in their name, and ensure that custmers dealing with the ARs are affrded the same level f prtectin as if they had dealt with the firm itself; T be able t demnstrate that custmers wh receive prducts and services delivered by the ARs are being treated fairly, buying prducts apprpriate t their needs and requirements, and receiving fair utcmes. 4 Next Steps The FCA s next steps are:- Issuing a Dear CEO letter f relevant principal firms setting ut their expectatins and actins t be taken; Cnsider the need fr further thematic r supervisry wrk; and cnsider the need fr ther regulatry actins including assessing whether there is a need fr plicy interventin r t adjustments t their apprach t authrisatins. IF YOU HAVE APPOINTED REPS AND HAVE ANY CONCERNS PLEASE CONTACT US FOR A FREE INITIAL ASSESSMENT. Brank Ltd effective FCA cmpliance slutins Cntact: brank@brank.rg.uk and