How do the rules apply to non-price setting intermediaries?

Definition of a renewal

In August 2021, the FCA published an amendment to the requirements which clarified the definition of a renewal for the purposes of the new rules:

• Where a firm actively moves a customer to another channel, distribution arrangement or to a similar policy at the end of an existing policy - this should be treated as a renewal
• Where an existing customer actively buys a policy with the same firm through a different channel or distribution arrangement - this should be treated as new business rather than a renewal

Fees

Fees charged to customers at renewal must not be higher than those charged to new customers.

This applies to arrangement fees that are charged as part of insurance distribution (including those at renewals). This does not apply to contingent fees, such as fees for mid‑term adjustments.

Premium finance and active election 

Retail premium finance is considered an ‘optional additional product’ for the purpose of the new rules. As such, a firm offering premium finance must ensure the customer has actively elected to obtain it before entering into an agreement.

The FCA noted that offering the customer the choice between paying monthly or annually is insufficient to prove active election.

Auto-renewal

Firms need to inform customers of the following:

• Whether their policy will auto-renew
• The effect of the auto-renewal
• If they need to take action to accept the renewal offer
• Having the right to cancel the auto-renewal at any time

Customers must be given the option to stop autorenewal using at least the same methods offered when purchasing a new policy. This information must be provided in good time and in writing or in another durable medium before conclusion of the contract.

Whilst the rules relating to autorenewal disclosure come into effect on 1 January 2022, the FCA has added a transitional provision that allows firms until 17 January 2022 to have the required processes in place. The FCA updated the rules to make clear that, where a firm uses the transitional provisions, it must take retrospective action to provide the required auto-renewal disclosures for all communications made during the transitional period, irrespective of when the contract concludes.

Commission-rebating

For reporting purposes, commission‑rebated business counts as gross‑rated business, where only the insurer is required to report data. However, the FCA is introducing a requirement for intermediaries to notify them where over 25% of either their home or motor sales include commission‑rebating.

Product distribution 

Distribution strategies must be consistent with the aim of providing fair value to the customer. Product distribution arrangements must be reviewed at least every 12 months.

The FCA set out considerations for firms, including:

• The benefits the product is intended to provide to the customer
• The characteristics, objectives, interests and needs of the target market
• The price paid by the customer and the extent, and quality of any services the distributor provides
• Whether remuneration received by the firm for the product provides fair value to the customer
• Any potential detrimental effect on the intended value where the product is to be distributed as part of a package

Distribution arrangements should not result in:

• A level of remuneration that is not reasonable to the costs, contribution or benefit added to the arrangement for the distribution of the product
• Product recommendations that do not meet the customer’s needs or disregard the customer’s best interests as a result of the firm’s remuneration arrangements
• The overall price of the package is disproportionate to the overall benefits provided by the package, where insurance is distributed as part of a package

The level of any remuneration not being reasonably reflective of the costs actually incurred