Application to insurance distributors

Many of the main themes and ideas underpinning the new Consumer Duty will be familiar to the insurance sector, as it has already undertaken changes to implement the Insurance Distribution Directive, the Customer’s Best Interest rule and product oversight and governance requirements. The sector has had to consider concepts such as fair value and good and poor customer outcomes for some time. However, there will still be additional work involved for firms to comply with the new Consumer Duty.

The FCA has confirmed that the scope of the new Duty will be the same as that of the Insurance Conduct of Business Sourcebook (ICOBS). The new FCA Glossary definition of “Retail Market Business” clarifies that the Consumer Duty does not apply to contracts of large risk sold to commercial customers, reinsurance, or other contracts of large risk where the location of the risk is outside the UK. Therefore, insurance sales to many SMEs, and to individuals within the UK owning private aircraft or boats will be caught within the scope of the new Consumer Duty, as well as sales to those who would more usually be considered consumers.

The FCA has confirmed that the Duty does not apply to the distribution of group insurance policies or the extension of these policies to new members. However the new Consumer Duty will still apply in respect of the manufacturing of group insurance policies where the end-user is an individual (which is common for this kind of insurance cover).

The FCA has also provided insurance specific guidance on how firms in the insurance sector should approach situations where they decline insurance applications. For example, the FCA referred to travel insurance firms who are already required to signpost customers who are declined because they have pre-existing medical conditions to a directory of specialist insurers. The FCA says this approach is consistent with its expectations under the new Consumer Duty, as customers are signposted to a reliable source of information that can help them to achieve their financial objectives. Insurance firms selling products other than travel cover should therefore also consider signposting to other providers when declining customers.