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Product Governance Review: Guidance for Insurance Firms & Role of RegTech

30th October 2024

Product Governance Review: Guidance for Insurance Firms & Role of RegTech

The FCA’s latest report on Product Oversight and Governance (PROD 1.4 and 4) for General Insurance and Pure Protection products has issued a clear call to the insurance industry: it’s time to ensure products genuinely meet customer needs and deliver fair value. Amid today’s challenging economic climate and an escalating cost-of-living crisis, regulators are emphasising the importance of fair treatment and strong customer outcomes more than ever.

Findings on Product Governance

The FCA review covers critical areas where many firms still need to improve, from oversight to compliance. While some manufacturers are making progress, many struggle to clearly demonstrate how their products deliver fair value to customers. The issues highlighted in the review include:

Inadequate Fair Value Assessments:

Many firms overlook the complete price paid by customers, including distributor fees, which makes it difficult to confirm that they’re getting fair value.

Weak Management Information (MI):

Without solid MI and relevant KPIs, it’s hard for manufacturers to track how well products meet fair value objectives. This data gap leaves firms vulnerable in demonstrating their compliance with FCA standards.

Value for Specific Customer Segments:

The review points out a lack of targeted Fair Value Assessments (FVAs) for distinct customer groups. A product that offers fair value broadly might miss the mark for certain customers, which can impact fair treatment.

Compliance Evidence:

Even firms conducting FVAs often struggle to show concrete evidence of compliance. This lack of transparency limits the FCA’s ability to assess outcomes effectively.

For distributors, the report also noted a lack of understanding around responsibilities and strategy within the distribution chain. Distributors need to see how their methods impact fair value to maintain compliance, with key issues including:

Distribution Strategy Gaps:

Many distributors lack clarity around FCA requirements, leading to inconsistent approaches that may not meet fair value requirements.

Inconsistent MI Monitoring:

Quality data is crucial for distributors to ensure alignment with fair value standards. Without it, firms risk falling short in oversight and customer outcomes.

Ultimately the key findings state manufacturers must provide oversight, make clear value judgments with evidence, and address value issues proactively. While distributors need to align with the manufacturer’s distribution strategy, assess how activities impact product value, and act quickly to resolve any problems. The FCA’s findings make it clear that firms need to raise the bar on product governance and fair value delivery. Non-compliance could lead to severe regulatory consequences, including product withdrawals or financial penalties. Adhering to FCA standards ensures that products are genuinely aligned with customer needs and that each stage in the distribution chain is managed responsibly.

Key Challenges: Data and Oversight

Effective product governance relies on firms having complete visibility into their supply chains. But acquiring and analyzing data across distributors and third-party partners can be challenging. Common obstacles include:

Fragmented Data:

Accessing data from various points in the distribution chain, such as brokers and third-party partners, can hinder visibility and delay compliance efforts. This siloed approach of gathering data leaves room for errors, increases information acquisition time and burdens compliance teams.

Manual Processes:

Relying on outdated, manual processes often leads to data gaps and inefficiencies, making it hard to track key metrics. De-centralisation leads to misjudgements, incomplete assessments and difficulty securing information across the entire distribution chain.

Difficulty Demonstrating Compliance:

With fragmented oversight, many firms struggle to provide clear evidence of compliance with fair value standards, particularly in specific customer segments.

How RegTech Can Help Insurance Firms Meet FCA Standards

Regulatory technology (RegTech) is becoming essential in addressing these compliance challenges. RegTech solutions allow insurance firms to streamline oversight and data management by automating data collection, analysis, and reporting. Here’s how RegTech can support product governance:

Efficient Data Sharing Across the Chain:

RegTech platforms facilitate real-time data exchange between manufacturers, distributors, and other stakeholders, enabling firms to monitor the full distribution chain. This secure, real-time sharing provides firms with essential transparency, helping them track product distribution and maintain oversight.

Targeted Analysis:

Advanced analytics tools within RegTech platforms enable targeted assessments and in-depth analysis across customer segments, allowing firms to pinpoint trends and flag potential fair value issues in real-time. This detailed approach ensures that products remain aligned with FCA standards on customer outcomes and value.

Enhanced Reporting and Oversight:

With structured and automated reporting, RegTech solutions simplify compliance by providing accurate, up-to-date reports for Fair Value Assessments and other governance requirements. This level of precision helps firms demonstrate compliance, especially crucial when showing fair value for specific customer groups or distribution channels.

Proactive Compliance:

RegTech systems allow firms to flag emerging issues before they escalate. By maintaining ongoing oversight of product performance, pricing, and distribution practices in a centralised database, firms can address any concerns proactively, reducing the risk of regulatory scrutiny or intervention and ensuring the delivery of fair outcomes for consumers.

As the FCA increases its focus on fair outcomes, insurance firms must take a proactive, collaborative approach to product governance. Working closely with distributors, ensuring clear oversight, and adjusting strategies to address emerging value issues are all critical. By leveraging RegTech to streamline these processes, firms can meet FCA expectations while enhancing operational efficiency and building stronger, more transparent relationships across the supply chain. This not only leads to better outcomes for customers but also helps firms mitigate the risks associated with non-compliance.

To explore how REG can streamline your product governance and fair value assessments,  Book a demo with our team

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This article was published by:

Article author:

Zoë Parsons

Zoë Parsons is the Marketing Manager at REG Technologies. With a passion for creativity, she is dedicated to driving the success of REG’s digital presence through innovative strategies and a keen advocate for diversity and inclusion.

020 3946 2880

info@reg.uk.com

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