It looks like the FCA is planning big reforms to the protection market and the majority of this review will analyse it at some length. For those who don’t do lots of protection however, we are going to look at three other stories first.
First a nice scoop from New Model Adviser though on the basis of people familiar with the matter, so it’s not an official announcement.
The FCA tells SEI to conduct section a 166 review with Grant Thornton reportedly appointed as the expert.
It throws up a lot of interesting issues to do with underlying platforms. SEI fires a lot of wealth management offers as well as being used by some IFAs.
Standard Life has been appointed the "safe haven" provider for people who have been scammed out of their pensions as FTAdviser reports.
Dalriada, the trustee appointed by The Pensions Regulator to represent almost 7000 members across over 100 distressed schemes, was tasked with finding a new ‘safe haven’ pension provider for those defrauded of their pension savings.
With no employers involved in any decision making, Evelyn Partners supported Dalriada in the process to select Standard Life as the ‘safe haven’ provider for these members.
The government has said the NHS will move its mid-life health MOTs from GP offices to the workplace in a bid to prevent heart disease, diabetes and strokes as Corporate Adviser reports.
Now to the protection story.
It would appear likely that the protection sector is facing a huge shake up in its market practices and maybe even something of a regulatory 'High Noon'. Although this is a market study not say a consultation in anticipation of new rules, it comes with what will read as some very serious concerns from the FCA into aspects of market practice.
Arguably Healthcare & Protection wrote the best summary of where things stand.
Indeed, the headline is a good summation - "FCA protection market investigation focusing on loaded commission, product churn and insurer competition."
Yet we are going to quote from the published terms of reference paper at length here because it gives an insight into how serious this all sounds.
““We want to understand the impact that commission has on intermediaries’ incentives, both for advised and non-advised sales. We have seen examples of intermediaries encouraging customers to switch unnecessarily (e.g. to a product that does not meet their needs as well or that provides poorer value) to earn repeat commission. We also want to understand the use of ‘loaded premiums’ – a mark-up to the standard premium paid by a consumer that enables additional commission to be paid to an intermediary.
“We will consider the extent of any impact that their use could have on intermediaries’ incentives. Commission arrangements, such as loaded premiums, may also impact price and therefore fair value outcomes for consumers. We want to understand whether the distribution arrangements for pure protection products are consistent with the aim of providing fair value.”
To put some meat on the bones of the broader study, the regulator is worried about commission arrangements not being aligned with the client interest. From its language, the FCA does not like loaded premiums, has some concerns about recommendations not suiting the client but the adviser in terms of switches and, arguably separately, disliking the value offered by over 50s whole of life plans. It is also worried about concentration of business with the top 5 dominating and recently several protection firms leaving the market.
Arguably these are three different issues though it is possible the FCA could suggest concentration is partly enabled by commission arrangements.
The combination of possible Consumer Duty breaches on value and consumer understanding and indeed the identification of problems in the market bring the statutory objective regarding markets suggest action is almost inevitable.
Interestingly the Protection Distributors Group which tends to represent independents and has been against loaded premiums is worried about indemnity commission being criticised and wants a swift review again quoted in H&P.
FTAdviser has protection specialists hailing the review. It is perhaps significant however that both Protection Guru’s Ian McKenna and CI Expert’s Alan Lakey have some misgivings the former around too heavy handed an approach in light of IP sales increasing and the latter warning about the FCA confusing switching and churning.
One final point in term of who is commenting – it appears that the insurers and indeed networks involved are keeping their heads down.
No big insurer or network using the practice of loaded premiums and enhanced commissions has made a public utterance as yet so all the ‘welcomes’ headlines may be a little skewed.
This is a new market study but it is also significant that the regulator has already conducted a market study across not just protection but other insurance products and reported on it as Money Marketing wrote just a week before.
Although the above work suggests a lot of pressure being put on IFA and mortgage networks commission practices, the phrase from this earlier broader study also suggests providers will not get off the hook.
“The key findings of the report showed that many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes.
“It also found 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.”
That reads like co-responsibility.
The FCA does refer to ‘when commission works well’ in the terms of reference above so it may not bring a commission ban but other practices may well be outlawed. It does read as if big changes are afoot.
