Insurance - Q1 2024

Suspension of GAP sales and fair value

The FCA confirmed the agreement from 80% of the market to pause sales of Guaranteed Asset Protection (GAP) insurance in February. While this headline is significant, the FCA’s concerns with GAP insurance are long-standing, dating back to the FCA’s 2014 Market Study.

Just last year, in September 2023, the FCA issued a stark warning to GAP insurance firms asking them to take immediate action to prove customers are getting fair value. This was following the publication of the 2022 FCA General Insurance (GI) value measures data which revealed that, in some instances, up to 70% of premiums were paid out in commissions throughout the distribution chain, such as to motor dealerships. This prompted serious concerns around the value delivered to retail customers.

The value measures data has implications for the wider motor market to consider in their own distribution chains and value offerings. Excess protection, as a motor add-on, was also flagged by the FCA as an area of concern.

For further information on the suspension of GAP insurance, please visit our Regulatory Insights Page.

Anti-greenwashing rule

As part of the FCA’s Sustainability Disclosure Requirements (SDR), the FCA published guidance on complying with the new anti-greenwashing rule (which comes into effect on 31 May 2024).

Greenwashing concerns relate to “marketing that portrays an organisation’s products, activities or policies as producing positive environmental outcomes when this is not the case”.

Under the new rule, insurance firms who make sustainability claims must ensure claims are:

• Presented in a clear and easily understood way
• Transparent and not misleading
• Capable of being upheld

The application of this rule to the insurance industry are vast and can be seen across the (re)insurance value chain, for example, in relation to Net Zero commitments and underwriting risks.

For further information on anti-greenwashing rules, please visit our Regulatory Insights Page.

Non-financial misconduct: FCA data request

In February 2024, the FCA circulated a letter that requested all regulated Lloyd’s Managing Agents and London Market Insurers (including P&I Clubs) and Lloyd’s and London Market Insurance Intermediaries (and Managing General Agents) complete a survey on incidents of non-financial misconduct.

Non-financial misconduct has been at the forefront of FCA focus for the last few years. The latest information request asked for data from 2021-2023 regarding:

• The number of non-financial misconduct incidents recorded, and the method in which the incidents were detected, such as through whistleblowing processes
• The outcomes of these incidents, such as dismissal or warnings
• The number of further outcomes recorded, such as non-disclosure agreements and employment tribunals

The FCA has requested that the data distinguishes between Senior Management Functions (SMF) and non-SMF incidents, and incidents both in and outside of the workplace. This request includes incidents that did not meet FCA reporting thresholds previously, and subsequently were not reported to the FCA. 

The survey deadline was 5 March 2024, and this information will form part of the FCA’s ongoing supervisory work programme, which could be used to inform broader learning.

PRA CP2/24 - Solvent exit planning for insurers

In January, the Prudential Regulatory Authority (PRA) published a consultation paper on how insurers should prepare for an orderly ‘solvent exit’ with limited disruption to customers and the market.

The proposals in the Consultation Paper (CP) include:

• New rules and expectations that firms must prepare for a solvent exit, and that firms must document those preparations in a Solvent Exit Analysis (SEA)
• New expectations, which would apply only if solvent exit became a reasonable prospect for a firm, on how firms should:
  • Prepare a detailed Solvent Exit Execution Plan (SEE)
  • Monitor and manage a solvent exit.

The deadline for responding to the CP is 26 April 2024. The proposed rules are set to be implemented from Q4 2025 when all in scope insurers would be expected to have an SEA in place.

International Association of Insurance Supervisors (IAIS) Newsletter February 2024

The IAIS aims to promote effective and globally consistent supervision of the insurance industry. On 29 February, the IAIS published its newsletter to update the sector on its areas of focus, including:

• The Peer Review Process (PRP) and Insurance Core Principle (ICP) 16: Enterprise Risk Management for Solvency Purpose. There are over 60 jurisdictions participating in the review. Findings will be published in an aggregate report.
• Fifth Member Assessment Programme (MAP): this year will mark the launch of the fifth MAP and will be an assessment of Oman’s insurance sector. The purpose will be to assess a member’s implementation of all current ICPs.
• Insurance Capital Standard: discussions have begun on the implementation of the Insurance Capital Standard to become a requirement for internationally active insurance groups.

IAIS: Regulation and supervision of artificial intelligence and machine learning (AI/ML) in insurance

In December 2023, the IAIS released a thematic review of the adoption of AI/ML in the insurance value chain (marketing, underwriting, pricing, claims management etc.). The review focused on the associated risks, including:

• Operational risks with issues in data security, third-party dependencies, and cyber risks
• Conduct risks with potential discrimination or the biased treatment of customers
• Model risks stemming from design flaws or a lack of transparency in AI/ML models

The IAIS addressed the different levels of maturity of AI/ML legislation and guidance across a variety of jurisdictions. With the growing use of AI/ML in the insurance sector, the IAIS plans to publish an application paper on the topic this year.

Get in touch

If you would like to speak with a member of our insurance team, please click the button below to get in touch.

Contact us today