As you will be aware, the Financial Conduct Authority (FCA), in its Policy Statement (PS21/5) introduced new rules resulting from the conclusion of its work on general insurance pricing practices. The work relates to our UK business and UK intermediaries and policyholders only.
The FCA’s new product governance and pricing rules came into effect on 1 October 2021 and 1 January 2022. These were designed to set a number of new requirements in respect of product governance and pricing practices in order to ensure fair value to policyholders. As an FCA-authorised firm, you will be familiar with these requirements (in particular those affecting your sales processes and if you act as a price-setting intermediary), but we are writing to you to explain how our insurers intend to fulfil some of the requirements in respect of product value which fall on product manufacturers. It should be noted than for all policies arranged through Advance Schemes Ltd we act as Distributor 1, we are not a product manufacturer or co-manufacturer.
Fair value assessments
In line with the new requirements, our insurers are carrying out Fair Value Assessments of all product groups. They do this by considering factors such as policy cover and exclusions (including any duplicate cover), claims performance, complaints trends, and remuneration, including any costs and charges added as part of the distribution.
Our insurers are incorporating additional measures to assess where the value of one of their products might be affected by those additional costs added by the firm/s distributing it. This is especially important where we would not be aware of earnings where these are added in addition to remuneration such as commission which is agreed by the insurer. For example, where distributing brokers might add administration fees.
We have requested all of our brokers to complete a form which requests information about administration fees and any other elements which might dilute the value of a product.
Insurers recognise that administration fees are common practice in the insurance sector and acknowledge that these are often charged in respect of costs which are separate to the remuneration paid to brokers for the arrangement and advice of insurance policies. They are carrying out work to review the nature and range of administration fees charged by brokers and the likely impact of a reasonable administration fee on the value of our products where this is charged by them or others in the chain.
Insurers are also devising a set of Target Market Statements (TMS) to ensure those brokers and sub-coverholders they work with, have adequate information about those policyholders for whom our products are suitable, or to highlight examples where a product may not be suitable for a particular group. The TMS for the products that we distribute are linked below. Please note that not all of our insurers have issued their full TMS yet, this page will be updated as and when they do, so check back regularly.