On 19 November 2019, the Financial Conduct Authority (FCA) published finalised guidance on The GI distribution chain: Guidance for insurance product manufacturers and distributors (FG19/5). The guidance follows several years’ work by the FCA on product value in general insurance, including the publication of a report following a thematic review in April 2019 (General insurance distribution chain (TR19/2) – see our blog post). Proposed non-handbook guidance on the expectations of the regulator in respect of product design, oversight and distribution was also published at that time. FG19/5 provides the final version of this non-handbook guidance.
The FCA’s work has considered potential harm to customers from product development and distribution including high delivery costs in contrast to the cost of insuring the underlying risk. The FCA also found that some product manufacturers were handing over control of the product design to other parties in the distribution chain without proper oversight or consideration of the effect on product value and customer outcomes.
How has the guidance changed?
Following feedback, FG19/5 includes the following changes:
- Clarified scope to make clear that the guidance applies to the distribution of all GI products, including pure protection products launched on or after 1 October 2018. The FCA also clarifies that it applies to products for commercial customers, with the exception of large risks and reinsurance contracts.
- Clarified how the guidance on value links to existing handbook rules.
- Explained that value could include product quality and additional services in addition to price and remuneration. Value should not be construed too narrowly.
- Amended the guidance for manufacturers in relation to their oversight of the distribution chain. Some respondents expressed concern about how far they would be expected to go to get information on remuneration arrangements through their distribution chain. The FCA’s guidance reminds distributors of their obligation to provide information to manufacturers on request.
- Confirms that where there is a conflict of interest (for example because of a remuneration arrangement), firms cannot rely on disclosure to manage the conflict.
How does the guidance fit within other rules on managing product governance?
FG19/5 should be read alongside:
- Responsibilities of Providers and Distributors for the Fair Treatment of Customers (RPPD);
- ICOBS;
- Product Intervention and Product Governance Sourcebook (PROD); and
- SYSC 10 and 19F.2.