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June 8, 2023
For insurance firms, the requirement to apply a ‘fair value for a reasonably foreseeable period’ test to insurance products has been in place since October 2021. This is reinforced by the Consumer Duty (“the Duty”), under which firms need to deliver and assess four outcomes, including a price and value outcome. A robust price and value assessment framework is a key element in ensuring that firms can carry out individual value assessments.
Our forthcoming Hot TopICS explores what such a framework could include. Our February Hot TopICS also set out how firms can deliver their Consumer Duty implementation plans, and provides further suggestions about what firms can do in relation to the price and value outcome.
To help firms better understand the FCA’s expectations in relation to the Duty’s price and value outcome, it has reviewed a small sample of 14 mainly large firms’ fair value assessment frameworks and has published its findings. The 14 firms represented four financial services sectors; insurance was not represented, however. The FCA believes that many of its observations will be relevant to the wider population of regulated firms. The review looked at the firms’ overall assessment frameworks, but did not cover more detailed documents such as the assessments of individual products and services.
These findings:
- can provide guidance and assistance to insurance firms, not just about meeting the requirements of this outcome under the Duty, but also under the existing product oversight and governance requirements in relation to fair value; and
- reiterate the rules and guidance on fair value. The FCA’s examples of good practice and areas for improvement refer to the FCA’s rules and guidance on price and value in PRIN 2A.4 and Chapter 7 of the FCA’s non-Handbook Guidance for firms on the Duty.
Remember, if insurance product manufacturers and distributors are meeting the fair value assessment requirements under PROD 4.2 and PROD 4.3 respectively, they will be deemed to be meeting the new PRIN 2A price and value outcome requirements under the Duty.
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