The FCA has finalised guidance on what it believes insurers and insurance intermediaries should be doing to identify issues relating to COVID-19 that affect the value of insurance products. The guidance is intended to highlight areas where firms might prioritise product reviews in light of the pandemic.
The FCA expects firms to consider how the COVID-19 outbreak has affected the value of their products. This might mean include situations in which:
- firms are no longer able to provide the expected contractual benefits under a policy due to lockdown (for example, where a service under the policy cannot be performed due to social distancing); or
- the chance of an event occurring has been fundamentally affected by the outbreak with the result that the policy has little or no value, for example public liability insurance where premises are locked and empty.
The FCA says that product level reviews should be undertaken for the above situations but firms may undertake a wider review if they wish.
The FCA reminds firms that they are already required to undertake a product review to ensure that products remain suitable for the intended target market: “Product manufacturers should be considering whether a product, including its costs and charges, remain compatible with the needs, objectives, interests and characteristics of the target market.”
The guidance does not create an expectation that firms should reassess the value of a policy where the outbreak has diminished but not removed the possibility of claims being made. For example, just because people have used their cars less it should not mean that motor insurance policies must have premiums reduced as claims are still a realistic possibility.
For customers in temporary financial difficulties related to the outbreak, the FCA will expect firms to consider the value of products when customers contact them or when customers miss payments.
The FCA believes that there is no need to be prescriptive about the actions that firms might take to deliver product value for customers. However, firms will be expected to be able to demonstrate how they have met their obligations at a product level and be able to show how they are treating their customers fairly. Firms are not required to assess value on an individual customer level.
If firms are providing refunds or partial refunds to customers which do not require a change to the policy terms, it is unlikely that firms will need to treat such refunds as a mid-term adjustment for the purposes of renewal disclosure rules under ICOBS.
Firms need to undertake this review of product lines and resulting actions by 3 December 2020. The guidance took effect from 3 June 2020.
