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Dear CEO letter 
"Implementing the Consumer Duty in the General Insurance and Pure Protection sectors"

FCA issued further guidance via Dear CEO letter and updates its Consumer Duty Page.

An overview.

As repeatedly indicated by the FCA since October 2022, the FCA has conducted a market review regarding firm's implementation progress with the new Consumer Duty.

In this article, we look at what the FCA has highlighted as key findings, matters that firms should take into consideration.

It should be noted that the sample firms the FCA considered are the  so-called 'fixed firms', those who have dedicated supervisors and operate mainly in the retail sector. 

As a direct result, the findings in the letter will not be representative of the entire sector however the FCA confirmed that further outreach will take place thus smaller firms will receive further information request.

Key Themes.

'[The FCA] have identified three key areas where firms should particularly focus their attention during the second half of the implementation period (to 31 July 2023)'

Following the review, the FCA found that some of the firms are falling behind with their implementation plan, despite having seen positive results as well. These key areas include:

  • Effective Prioritisation

    • It is recognised by the FCA that the changes are interconnected within the firm. Such as customer services being dependant on distribution and product value compliance. Firms therefore should ensure appropriate priority exists in the implementation plan to ensure timely compliance.​

  • ​Embedding the substantive requirements

    • The FCA has found evidence where firms being superficial with their implementation and to some degree, assume that their existing arrangements are compliant. ​

    • We remind firms that any assessment should be tested, documented and signed off.

  • Working with Other Firms​

    • ​To implement the Duty on time, many firms need to work and share information with other firms in the distribution chain. However, some firms may need to accelerate their work on this important aspect of implementation. Firms should be considering where and how they work with third parties to deliver products and services to customers and making sure these arrangements will meet expectations under the Duty

The FCA's general feedback is that firms need to apply sufficient level of granularity during the implementation process.

Other Aspects to Consider.

In the same letter, the FCA has highlighted a number of areas for firms to consider. These areas, whilst fully captured by the Duty, tends to be overlooked by firms, or indeed, not considered to the correct level. These include:

  • Vulnerable Customers

    • The FCA has found that firms still have gaps in their arrangements regarding handling of vulnerable customers. In particular, identifying and recording which customers are vulnerable, and what support they need.

  • Living Crisis

    • The FCA, since COVID, has been paying close attention to how firms support customers in financial difficulties. This directly relate to the new duty and thus firms need to pay particular attention to it. Where relevant, firms should consider the Dear CEO letter issued in September 2022.

    • The FCA is consulting on replacing the insurance aspects of our previous guidance for insurance and premium finance for customers in financial difficulty due to coronavirus (Covid-19), with insurance guidance that applies to all customers in financial difficulty (CP23/1).

  • Appointed Representatives

    • Firms, particularly those who are Principals, must ensure that they comply with the enhance Appointed Representative rules (as come into force in December 2022).

    • In addition, both Principal firms and ARs must ensure that activities are fully compliant with the Duty, and such compliance can effectively be monitored (and evidenced).

Annex 2 - specific examples.

Products and services, and the price and value outcome

Indication of gaps in compliance...

Whilst compliance with PROD 4 achieves compliance with the two outcomes under the Duty, the FCA found (via the General Insurance Value Measures Data) that:

  • Claims costs as a proportion of premium ranged from 5.21% for GAP insurance as an add-on to 65.95% for motorcycle insurance.

  • For some products, add-ons have on average lower claim costs as a proportion of premiums, compared to the corresponding standalone product.

The FCA note that products with the lowest percentage of premiums paid out in claims included GAP insurance (add-on and standalone), travel insurance (various), excess protection insurance (add-on) and personal accident insurance (add-on).

This indicates issues in certain product category and thus those firms should review their existing arrangements.

Fair Value Assessment

The FCA found that some of the fair value assessments are superficial and urged firms to consider:

  • Analyse data in relation to the distribution arrangements (eg. add-on, tact renewal, etc)

  • Consider and analyse commentary (descriptive data such as feedback)

  • Consideration of non-financial aspect of products, such as customer support, additional signposting, etc.

  • Cost of providing the services (including operational aspects of a firm)

The FCA reinstated that the mere restatement of data such as loss ratios, claims frequencies, specified target markets and distribution methods without analysis, context and a conclusion, would not be sufficient to deliver an adequate assessment that a product provides fair value.

Consumer Understanding

The consumer understanding outcome rules retain the obligation for firms to

  • communicate information in a way which is clear, fair and not misleading, but they also will require firms to support their customers’ understanding by ensuring that their communications meet the information needs of customers, are likely to be understood by customers intended to receive the communication, and equip them to make decisions that are effective, timely and properly informed.

  • tailor communications by considering the characteristics of the customers intended to receive the communication – including any characteristics of vulnerability, the complexity of products, the communication channel used, and the role of the firm.

  • when interacting directly with a customer on a one-to-one basis, tailor communications where appropriate to meet the information needs of the customer and ask them if they understand the information and have any further questions.

  • test, monitor and adapt communications to support understanding and good outcomes for customers.

Customer Support Outcome


We will not regard firms as acting in good faith under the Duty, where poor practice like those listed above are not adequately addressed.

We urge firms to review in detail what examples the FCA has provided in the Dear CEO letter. In particular, review whether 

  • Are the same level of resource and importance applied to customer support as is for business development?

  • Does MI include (as trend) metrics such as abandoned calls, complaints, claims delay or general support

  • Are claims handling appropriate, including settlement time and value assessments? 

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