Firms should manufacture and distribute products that deliver fair value to customers. We’re disappointed to see many insurance firms are not fully meeting their product governance obligations.
Read the thematic review (PDF)[1]
Why we conducted this review
Products that do not deliver fair value may cause harm to customers.
Under PROD 4[2], firms are responsible for making sure customers consistently get fair value and good outcomes from the products and services they manufacture and distribute.
To find out if firms are meeting their obligations, we have assessed insurance manufacturers and distributors’ product oversight and governance arrangements against what is required under PROD 4[2].
We analysed information from 28 manufacturers and 39 distributors covering 10 different general insurance and pure protection products.
We looked at whether firms have:
- assessed and can demonstrate their products and services offer fair value
- effective product governance arrangements to meet the requirements under PROD 4
- taken effective action where products may not be providing the intended value
Who this applies to
This report is for all manufacturers and distributors of:
- general insurance products (excluding contracts of large risks and reinsurance)
- pure protection products
Product manufacturers and distributors in other sectors of the UK financial services industry may also find the report interesting; though PROD 4 is not applicable to other types of financial products, it is closely aligned with two of the outcomes under the Consumer Duty: price and value, and products and services.
Key findings
Many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes. This means firms are not identifying any instances where their products are not delivering fair value for customers.
Most distributors do not fully understand their responsibilities to consider their remuneration, its interaction with the services and benefits they provide, and its impact on the product’s value.
These failings can lead to harm as we’ve highlighted in our latest Value Measures publication and through our intervention on GAP insurance.
Background
In recent years, we have strengthened our rules on product governance. This included provisions to ensure products offer fair value and customers are getting good outcomes such as:
- strengthening product governance rules under PROD 4 in 2021
- introducing the Consumer Duty in 2023
Our previous work, for example on GAP and multi-occupancy buildings insurance showed customers were not always getting fair value and good outcomes when they buy financial products.
Next steps
Actions for firms
All manufacturers and distributors of general insurance and pure protection products should:
- consider the contents of this report urgently
- assess whether and to what extent these issues apply to your activities
If you identify shortcomings in your firm’s product governance arrangements, we expect you to act promptly to remediate them. This includes redress to customers where harm has been identified.
See examples of better and poor practice set out in chapters 4 and 5 of our report.
Further supervisory work
We’re giving feedback to the firms involved in our review.
We’re also considering the most appropriate supervisory and regulatory actions we can take to address these issues as soon as possible, such as:
- setting action plans and timelines for firms and their senior managers to make sure their product governance arrangements meet PROD 4 requirements
- getting firms to withdraw products from the market
- using our skilled person review[3] tool, where appropriate
Where we see failings have caused significant harm to customers, we will seek to make sure firms and their senior managers are held accountable for these failings and remediate the harm.
Firms who still fail to fully meet their obligations in this area, and who cannot show that they are delivering fair value consistently, can expect us to intervene using the full range of our regulatory tools.