The Financial Conduct Authority (FCA) has been looking into the general insurance sector, which includes a wide range of products such as home, motor and travel insurance.
The probe focused on the way in which middlemen sell policies to customers on behalf of firms in the general insurance sector. Firms in this sector have a responsibility to make sure these middlemen, or “appointed representatives” are acting in line with the FCA’s rules.
The FCA wanted to understand the impact of these arrangements on customers, and find out whether firms had assessed the risks and put in place robust systems and controls to oversee their agents’ sales activities.
The watchdog found “significant shortcomings” when it came to firms’ understanding of their responsibilities for their appointed representatives and their control and oversight of their activities.
The watchdog found “poor customer outcomes” including customers buying products they may not need, products they may not be eligible to claim under or customers not being given enough information to make an informed decision.
It said that at the appointed representatives of one firm there was “significant evidence of mis-selling leading to actual customer detriment”.
The FCA said it is considering the need for customer redress and whether further regulatory action is needed.
The watchdog has taken action in relation to five firms included in a sample, including asking two firms to stop their sales activities.
The FCA has also commissioned a review to assess whether detriment has been suffered by customers from mis-selling and to consider the adequacy of the controls in place.
The watchdog is also sending “Dear CEO” letters to firms with appointed representatives in the sector setting out what it expects from them.
There are around 400 insurers and 5,100 intermediaries who are directly authorised to operate by the FCA and some of these firms have appointed and accepted responsibility for over 20,000 appointed representatives.
The FCA initially conducted a survey of 190 un-named firms operating a network of authorised representatives. These were UK-authorised general insurers and general insurance intermediaries. They reported that they had more than 6,000 authorised representatives, with 75,000 individual representatives operating at 15,000 locations, selling over 10 million policies and generating annual revenues of over £500 million.
More than half of 15 firms included in the FCA’s sample could not consistently show they had effective measures in place to manage the risks arising from their appointed representatives’ activities.
Jonathan Davidson, director of supervision, retail and authorisations at the FCA said that while some firms have a good understanding of their appointed representatives’ activities: “We found widespread examples of poor practices across the sector. In many cases firms were simply failing to understand and manage the risks arising from their appointed representatives’ activities.
“General insurance is a large and important sector and we are concerned about the potential for customer detriment arising from the lack of oversight of appointed representatives. All principal firms need to consider these findings and look again at their practices.”
A spokeswoman for the Association of British Insurers (ABI) said: “This review did not look at insurers, but focused on the role of intermediaries and retailers in the selling of general insurance products. It raises some important issues for those firms involved and the wider insurance market to address.”