FCA Guides Insurers on Product Value Assessment During COVID Crisis
FCA published finalized rules and guidance for insurance firms to assess the value of their products in light of the COVID-19 crisis. The draft guidance was published in May 2020 and was subject to a short consultation period. FCA received 32 responses from interested stakeholders. FCA also published its feedback statement that includes summary of the feedback received on the draft guidance. This guidance is relevant to all firms involved in regulated activities related to all non-investment insurance products—that is, in general, insurance and protection policies and, in particular, firms that have manufactured these products. The guidance takes effect from June 03, 2020.
The guidance is intended to highlight what firms should be doing now to identify any material issues arising from COVID-19 that affect the value of their products and their ability to deliver good customer outcomes, during this unprecedented time. Firms will need to ensure that they are meeting the relevant product governance requirements for all insurance products, including the need for regular reviews. FCA expects firms that are manufacturers and/or product providers to consider whether and how COVID may have materially affected the value of their insurance products. The effects of the pandemic may mean that:
- Firms are no longer able to provide expected contractual benefits, either in the expected form, to the expected timeframe, or at all. For example, where fulfilling claims involves service providers whose movements are restricted because of lockdown, or some medical covers where customers cannot access certain benefits.
- There has been a reduction in the chance of underlying insured events happening for any holders of the policy, for example, due to government lockdown or other circumstances connected with the COVID pandemic, resulting in a fundamental change in risk for the firm and resulting in the product providing little or no utility to customers.
These changes could affect the intended value being delivered to customers of certain insurance products. The FCA expectation is that a firm should prioritize a product-level assessment that is restricted to cases where the firms or the product itself cannot deliver a benefit, or where there has been a reduction in the risk of an underlying insured event happening so that the product now provides little or no utility to consumers. Some firms may choose to go further than this, which we would be welcome, but not required. This guidance does not create an expectation that firms should reassess the value of policies because of COVID-19 where claims are still generally possible but the likelihood of a claim may have changed. Firms should complete their review of product lines and decide on resulting actions by no later than December 03, 2020. Firms can also assess the longer term impact of COVID-19 on their insurance products on an ongoing basis beyond the six-month period. FCA will review this guidance in the next six months in the light of developments regarding COVID-19 and may revise the guidance, if appropriate.
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Effective Date: June 03, 2020
Keywords: Europe, UK, Insurance, COVID-19, Product Value Assessment, Governance, FCA
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