Firms not challenging themselves enough on fair value – FCA boss Brewis

Speaking at the regulation session at the 2023 Biba Conference today, Brewis, pictured, told the audience: “This is an area where I think firms aren’t challenging themselves enough in terms of whether they’re providing fair value.

“We’ve got quite a few recent examples we put out, where we have seen firms applying a tick box approach, or thinking of a percentage not based on any kind of actual cost base rationale, leading to customers not potentially receiving fair value.”

But Dave Perry, managing director FSB Insurance Service, said regulation was difficult for brokers because of it is vagueness.

You can talk to two different consultants who have varying views on what is right.

Dave Perry, FSB

He said: “The first significant issue for us is the vagueness of the principles-based regulation.

“It’s great for bigger firms who perhaps employ 24 people in a conduct department to work out how to make the best use of it, and then maybe we can listen to them and copy what they do.

“But it’s the weight of regulation that we are all dealing with as small firms, that would be point number one that I would make.”

Perry argued fair value assessments had been “a mountain of admin, and I’m not sure that is what is was designed to be”.

He noted even regulatory experts can’t agree on the regulation.

“You can talk to two different consultants who have varying views on what is right. So that perhaps adds to the confusion that we are involved in.”

Brewis ‘pretty shocked’

When it came to a question from the audience on fees and charges, Brewis said he was “shocked” at what he had seen in relation to the buildings insurance market.

Last month, the FCA announced a near ban on paying commissions to third parties in the property chain, in a report that found widespread market failure in the buildings insurance market. 

Brewis said: “I have been pretty shocked at some of the practices we have observed in more than one insurance firm, which have not undertaken any kind of analysis as to determine the appropriate cost of charges they have applied to, effectively, the leaseholders.

“So the insurance premium has gone up 20%, and as that has happened, the brokerage has increased by that percentage.”

Brewis said the firms in the distribution chain may be doing more work, but the documentation, assessment and justification for the charges in relation to the work have been lacking.

“And then there is the interesting issue of payaways to the property managing agents, that we have seen across the sector,” he said.

“Some of the rationale for it has been things like services rendered, without any clarity what it is and what’s been done, and it is an area that impacts leaseholders significantly.”

Progress

Despite several concerns, Brewis urged the insurance industry to ‘keep going’ in terms of adhering to the regulation.

The key regulation of Consumer Duty comes into force on 31 July.

He urged brokers to read the FCA publications, such as the recent reports on buildings insurance, to improve their understanding of key insurance issues. 

He said the FCA publications contained useful information on low-value products, fair-value assessments and pricing product governance.

Brewis said: “In everything that we will be saying, that comes out, there is a lot of information that will be about Consumer Duty.”

Summing up, Perry said the four key words he was looking at were ‘measure, record, review and improve’.

He concluded: “When Matt and his team come out to have a look at what we are doing, that’s what they’re going to be looking for.

“Are we actually looking at the experience we are giving to our customers? And if we might be going wrong, what could be improved?”

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