REG Reviews
1st October 2024
Last month, the FCA released its Product Oversight and Governance review and increased scrutiny of Principal Firms’ oversight on ARs, REG partnered with Insurance Post to debate whether RegTech is a luxury or a necessity for tackling regulatory challenges, Insurance Business TV featured industry leaders discussing DEI and talent issues in the insurance sector, and rising concerns over deepfake and document fraud continue to affect the industry.
Read these articles and many more as we bring you all the important news and views in the insurance and financial services world…
The FCA has recently launched its final report on its Product Oversight and Governance thematic review for General Insurance and Pure Protection (PROD 1.4 and 4) in order to ensure that the financial products firms offer meet customer needs and fair value requirements.
The report stresses that this is particularly important given the current economic circumstances which are worsening the cost-of-living crisis.
Therefore, the FCA has increased its focus on making sure customers are treated fairly and that good outcomes are achieved.
Despite some good instances of strengthening their product oversight, the FCA concluded that many manufacturers are still not clearly showing how their products are delivering fair value and good outcomes.
As for distributors, the FCA recognises the improvement in firms’ oversight of their product distribution arrangements, with senior managers taking full responsibility.
Many distributors are still falling short of their obligations, lacking a proper understanding of current distribution strategies and their overall responsibilities. This leads to risks involving improper remuneration, unsuitable distribution methods, and targeting the wrong markets.
If firms continue failing to meet their obligations in complying with PROD 4, the FCA warns it may take stronger regulatory moves including product withdrawal and customer redress.
Below are some key examples of issues related to Fair Value Assessments, according to the FCA:
In its review, the FCA provided different examples of firms that failed to respect FVA and product governance rules and those that have demonstrated they’re meeting fair value successfully.
To conclude, the FCA expects firms to ensure effective product governance and conduct fair value assessments.
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.
Many customers have faced disappointing claims experiences, despite the process being intended to build trust between insurers and their clients.
According to Andy Holmes, chief executive at CFC, the negative claims experience customers are repeatedly having is leading to increased breaches of trust that consumers have in insurance firms.
In September, at the CFC Summit 2024, Holmes raised concerns about how the industry is going through a tough time derived from a “negative reputation” because of the “typical customer experience” as stated by Insurance Times.
He also added that the insurance industry usually instills trust and builds its reputation when customers make a claim.
Holmes emphasised that while insurance relies on trust, many claims processes damage that trust due to lengthy, tedious proposal forms and long waiting times for quotes, which can take weeks instead of hours or days.
Holmes’ remarks followed the Financial Ombudsman Service’s forecast of nearly 50,000 insurance complaints for the 2024/25 financial year, with buildings insurance being the second most complained about product.
Key issues were claim denials, delays, and disputes over claim values.
Holmes criticised the lengthy claims process, which harms the industry’s reputation, despite many positive claims experiences that go unnoticed.
So how can the insurance market rebuild trust and respect with its key customers at the moment of claims?
Telegram, the popular messaging platform known for its stringent privacy policies, has introduced a significant change to its terms of service. The company will now provide user data, including IP addresses and phone numbers, to authorities holding valid legal requests such as search warrants.
This decision, announced by CEO Pavel Durov, aims to deter criminal activities on the platform, which has nearly a billion users.
Durov expressed concerns about the minuscule fraction of users involved in illicit activities tarnishing the platform’s reputation. He stated; “While 99.999% of Telegram users have nothing to do with crime, the 0.001% involved in illicit activities create a bad image for the entire platform, putting the interests of our almost billion users at risk.”
The policy shift marks a reversal for Durov, who was detained last month by French authorities on charges including complicity in spreading child abuse images and drug trafficking.
Although he has denied the charges, the arrest ignited a broader discussion about the responsibilities of tech platforms in moderating content.
Critics have accused Telegram of harbouring groups that engage in misinformation, child pornography, and terrorism, partly facilitated by its ability to host groups of up to 200,000 members- a contrast to WhatsApp’s 1,000 member limit.
Following his arrest, concerns have escalated about the platform’s role in recent violence in English cities and its use by far-right groups.
In response to growing scrutiny, Durov revealed that Telegram has boosted its moderation efforts; “We are now using a dedicated team of moderators, leveraging artificial intelligence to conceal problematic content in search results,” he mentioned.
However, experts like Daphne Keller from Stanford University’s Center for Internet and Society suggest that these measures may still fall short of fulfilling the legal requirements in regions like France or the broader EU, especially concerning the moderation of illegal content like child sexual abuse material.
As Telegram navigates these changes, the global community is watching closely. The platform’s commitment to privacy has been a cornerstone of its appeal. However, with the new policy, the balance between privacy and compliance is being tested, raising critical questions about the future of free speech and safety on digital platforms.
Insurance Business TV recently featured Clare Talbot-Jones, Director of Business Development at Talbot Jones Ltd, and Florence Dennis, Lead Client Adviser at Partners&, in a panel discussion exploring the question: where is the insurance industry going right—or wrong—in its efforts regarding diversity, equity, and inclusion?
According to Talbot-Jones, despite remarkable advancements in society and in the insurance industry in trying to have greater equality, there is still a lot to do to break stigmas and reach a level of understanding towards women but also from a DE&I perspective in general.
Talbot-Jones emphasises that the industry needs to put the legislation around diversity that is on paper into practice. She says; “We need to change our perspective. As an industry, we need to appreciate that diversity is important, equality is important and it’s not something that everybody has equal access to.”
Dennis agrees that there is still a long way to go despite some progress and adds that job adverts for insurance roles are not always inclusive and appeal only to a category of people that can cope with “the Monday to Friday, 9 to 5 schedule”, which is not always possible for everybody.
One other pertinent issue insurance is still grappling with is the gender pay gap and Insurance Post has reported that women working in insurance earn about 20% less than men.
Not to mention that women also tend to hold fewer chances to take on senior leadership roles and aren’t being supported enough once they need to take maternity leave.
While answering whether women are equally treated in insurance, Dennis praises companies that have put efforts into addressing gender disparity. However, she clearly states; “We need to do more, and we need to do it a lot quicker.”
She also adds that childcare challenges that women have to deal with put them at a disadvantage compared to men for taking on senior positions.
The great news is that women find insurance appealing which translates into the 66% of entry-level jobs in insurance being filled by women.
The downside is that statistics radically change when women approach senior roles, and only 7% of insurance CEOs and a mere 16% of CFOs are women.
Talbot-Jones reports that language is also very important when it comes to diversity and inclusivity and unconscious biases made about women or any other group can extensively make that group feel excluded.
Moving away from gender, insurance leaders must make efforts to attract a variety of ethnicities and races too.
Dennis recommends that employers and insurance firms actively go to diverse schools and areas so they can talk about career options in insurance and therefore attract them into the industry, but also to break the biases around insurance being a boring career path.
Both agree that everyone deserves equal opportunity and that training, education, awareness, and understanding are vital to make the insurance sector more diverse and inclusive, no matter the ethnicity, gender, disability or sexual orientation.
The Financial Conduct Authority (FCA) has recently intensified its oversight of Principal Firms that manage Appointed Representatives (ARs), following a comprehensive evaluation that included telephone interviews with 251 Principal Firms and detailed assessments of 23 firms’ documentation.
The findings from the FCA’s review reveal significant gaps in compliance among principal firms. Notably, 20% of these firms have not conducted the necessary annual reviews or self-assessments of their ARs.
Additionally, half of the principal firms are not regularly revising their AR agreements, and a third are inadequately utilising data to monitor their ARs’ adherence to these agreements.
Jane Savidge, interim head of department for ARs, expressed concerns about the relaxed oversight practices observed in some firms.
“Effective oversight begins with robust, written agreements with ARs and continuous monitoring of their compliance with these agreements,” Savidge remarked. She highlighted that while some firms are effectively integrating FCA rules, others are merely meeting the minimum requirements.
The FCA has also shared best practices for firms, emphasising the importance of maintaining detailed compliance documentation and utilising diverse monitoring techniques to oversee AR activities.
This proactive approach comes in response to ARs being associated with up to four times more supervisory cases and complaints than other directly authorised firms.
The FCA’s reinforced regulatory measures, which aim to safeguard consumer interests and uphold market integrity, will see firm actions against firms failing to meet compliance standards. This step is part of the FCA’s broader strategy to ensure that financial markets function transparently and fairly.
The global reach of social media has turned it into a prime target for fraudsters and cybercriminals looking to exploit vulnerable users.
When speaking at the Verisk Insurance Conference in London on the 5th of September, Detective Chief Inspector at the City of London Police’s Insurance Fraud Enforcement Department (Ifed), Tom Hill, told representatives; “The drivers of fraud – greed, motivation and circumstances – have not changed. What has changed are the technological drivers that now facilitate it.”
He also added that; “Reported fraud cases increased by 8% last year, with most fraud now being cyber enabled.”
While social media makes our lives much easier in so many ways and connects us with our loved ones, it is also ground for cybercriminals and fraudsters that appear as genuine firms to trick people into buying illegitimate products or services, including fake insurance.
Data from UK Finance shows that in 2023, 76% of authorised push payment (APP) fraud, where victims are tricked into transferring money, began online, while 16% stemmed from phone calls and messages.
Although these scams occur across the internet, social media has emerged as a major avenue for such fraud.
Tom Hill also confirms that; “social media is increasingly used to facilitate fraud and target vulnerable individuals”, contributing to a 17% rise in fraud cases linked to these platforms.
Moreover, data stemming from the Insurance Fraud Bureau found that the amount of people who were tricked by ghost brokers on social media increased by 6% in 2023.
In July 2024, Ifed reported a case of fraud involving ghost broker Wahidullah Usmani, who earned £17,618 by selling fake car insurance policies through Instagram.
Another ghost broker named Mohamed Choudhary has been recently caught selling fake insurance policies using a false no-claims discount certificate.
Forbes refers to social media platforms as “fertile ground for scammers” in the sense that fraudsters and criminals can effortlessly create new accounts and imitate legitimate companies and individuals.
Hill noted that tackling the characteristics of insurance fraudsters is difficult, as social media platforms frequently overlook online fraud, hindering efforts to effectively address the problem.
So how can ghost broking and fraud issues arising on social media be solved once and for all?
The excitement surrounding artificial intelligence (AI) is overshadowing significant challenges faced by many technology companies still grappling with the economic impacts of the recent downturn, reports Financial Times. While firms like Nvidia and Microsoft have enjoyed massive share price gains, other tech businesses have not been as fortunate.
Beneath the headline successes, a large portion of the technology sector continues to struggle. Tony Kim, Head of Technology investing at BlackRock’s fundamental equities division, observes that aside from AI, “many sub-sectors are still in a recession,” indicating a broad lack of growth outside the AI spotlight.
2022 was a particularly tough year for the tech industry, with the Nasdaq Composite Index falling by almost a third. This downturn has left a lasting impact, with many companies finding it difficult to bounce back. Dustin Moskovitz, CEO of Asana and Co-Founder of Facebook, reflects on the ongoing challenges; “We’re still seeing the unwinding of the over-hiring and overspending that began at the pandemic’s start.”
Financial data supports this narrative of a slow-moving recovery. According to Bloomberg, the S&P 500 IT sub-index companies grew revenues by just 6.9% over the past 12 months, a decrease from a five-year average of 10%.
Similarly, earnings per share grew by 16%, down from a five-year average of 21%.
The disparity is even more pronounced in smaller tech companies, particularly in the Russell 2000 index, where tech was the second-worst performing sector in terms of revenue growth in the second quarter. Revenue fell by 6.1% year on year, and profits decreased by 2.8%.
The tech industry’s future remains uncertain, with a potential shift in investor focus away from AI-heavy giants towards other areas that could see recovery as economic conditions improve.
Ted Mortonson, a tech strategist at RW Baird, sums up the cautious optimism; “Everyone is hoping things get better in the next few quarters, though hope is not an investment strategy.”
Regulatory challenges and the burden the insurance industry grapples with have never been as stringent as it has been in recent years, particularly with the Financial Conduct Authority (FCA) and other watchdogs constantly introducing new regulations and laws around Fair Value Assessments, Consumer Duty, Solvency II and much more.
Moreover, manual and outdated processes are significantly slowing down operational processes which hinders insurance firms’ ability to focus on what’s more important; generating revenue and enhancing customer experiences.
REG Technologies’ recent research report, Insurance Post, and REG’s Marketing Manager, Zoë Parsons, shed light on the current challenges insurance firms are battling with. Recent articles shared across Insurance Post focus on the pressing need to treat RegTech as a necessity in order to effectively manage regulatory, legal, and compliance risks and make B2B trade faster, smarter, safer.
According to REG’s recent research, approximately 69% of insurance compliance professionals report that the regulatory burden tremendously increased throughout 2023. Moreover, it was found that manual processes and data siloes are the main reasons leading to non-compliance, with 28% of insurance companies facing big complications from not adhering to regulatory laws.
Despite these mounting challenges, many insurance and financial services firms are reluctant to adopt technology and RegTech, claiming that the costs are too high to migrate from their old software provider’s system. Not to mention that many insurance firms and professionals are concerned that technology will replace their compliance and reporting jobs, while in reality, it’ll only enhance their roles by helping automate mundane and repetitive tasks, freeing up time to focus on strategic decision making.
REG’s research also found that around 42% of insurance compliance professionals don’t know the advantages and benefits of using RegTech which signifies the need for educational campaigns.
RegTech’s advantages are multifold, it can:
So the question poised by Parsons of whether RegTech is a mere luxury or a necessity has a clear answer: RegTech enables insurance firms to have absolute confidence in compliance responsibilities; enabling them to uphold a strong competitive advantage and equipping themselves for future market demands. The laggers, however, risk being left out and could suffer major losses unless they break away from old-fashioned processes.
“For insurance firms, the question is no longer whether to adopt RegTech but how quickly they can do so. The growing complexity of regulations, combined with increasing pressure to remain cost efficient, means that sticking to outdated manual processes is simply not sustainable. Firms that fail to adopt modern technological solutions risk falling behind competitors and facing greater operational risks.
RegTech supports firms throughout the customer lifecycle, from streamlined onboarding to continuous counterparty due diligence – allowing organisations to focus on core priorities – building relationships and growing their businesses.
By staying ahead of regulatory changes, leveraging new technologies and implementing comprehensive compliance strategies, insurance firms can confidently address their regulatory responsibilities, manage risks and build a trusted, sustainable presence in the market.”
The British Insurance Brokers’ Association (BIBA) is urging the Financial Conduct Authority (FCA) to remove larger SMEs and commercial clients from the scope of the Consumer Duty regulation.
The trade body responded to the FCA’s discussion paper DP24/1 aimed at collecting industry feedback and thoughts on its regulatory laws of bespoke insurance firms.
BIBA believes that small and medium-sized enterprises don’t need to be included in the Consumer Duty regulation because they’re considered experienced buyers and their extensive knowledge of the market doesn’t classify them as vulnerable customers.
Additionally, BIBA added that its recommendation of removing these commercial firms from the scope of the Consumer Duty will significantly alleviate the regulatory burden on insurance brokers as most of them have professional risk managers in place to advise them.
The DP24/1 discussion paper sought input on whether the FCA’s regulations properly balance protecting customers who need regulatory safeguards with maintaining competitiveness in the commercial general insurance sector.
According to BIBA CEO, Graeme Trudgill; “Reducing the scope of the Consumer Duty is one of our most important manifesto aims and we are delighted that the FCA have consulted on it.”
He also added; “This is an opportunity to achieve change and help improve the burden of regulation on members. We are in a position where we think option three would be more beneficial, ensuring protection is in place for those who need it.”
BIBA highlighted that its members agreed on the necessity of revisiting the definition of a ‘retail customer.’ Additionally, members pointed out that the existing obligations to conduct product value assessments for commercial clients are overly burdensome.
The FCA stated that its regulatory review was driven by its goal to protect consumers and its new mandate to boost international competitiveness and support economic growth in the UK.
Insurance Times, in collaboration with insurer RSA, have unveiled the Talent Development Report 2024, a comprehensive analysis aimed at tackling the ongoing talent challenges within the UK general insurance market.
This initiative seeks to broaden paths for talent attraction, retention, and development as the sector battles an industry-wide war for talent.
Conducted in Q3 2024, the report draws on insights from an exclusive survey of 240 brokers, probing critical aspects of talent management.
Respondents provided perspectives on developing skills for the present and future, the training opportunities across UKGI, attracting new professionals into the industry, the obstacles to career progression, and reasons for brokers leaving the sector.
In the middle of regulatory shifts, technological advancements, and cost of living pressures, the necessity for skilled, high-quality staff who can drive exceptional customer service has become more noticeable than ever.
The Talent Development Report 2024 offers both quantitative and qualitative findings from the survey, enriched with expert commentary from RSA’s Sarah Mantle-Gray, Director of Total Talent, and David Enoch, Distribution and Proposition Director.
The report discusses effective strategies for talent development and retention, addressing challenges in implementing robust talent frameworks, ways to draw young professionals into UKGI, and the essential skills that will be required in the workforce a decade from now. You can find the full report here.
The Financial Conduct Authority (FCA) has significantly enhanced its operations, evident from its latest Annual Report. 98% of authorisations, including those from wholesale market firms, are now processed within statutory deadlines, up from 89% in early 2022/23.
This improvement not only speeds up the entry of new firms into the market but also strengthens the UK’s position as a leading global financial hub.
The FCA’s major reforms include the largest overhaul of listing rules in over three decades, aimed at facilitating easier capital access for firms.
Additionally, the regulator has increased its pre-application support for overseas firms, further boosting the UK’s financial attractiveness.
On the consumer protection front, the FCA has more proactively intervened against problematic firms, with authorisation cancellations doubling in 2023 to 1,261.
This year also saw a 68% increase in interventions against firms causing serious concerns.
Significantly, the FCA has improved its role in ensuring fair consumer compensation. It has worked with almost 100 lenders to better support borrowers facing financial difficulties, with around 270,000 customers expected to receive close to £60 million in compensation.
In its fight against financial crime, the FCA charged 21 individuals in 2023 – the highest annual number to date – and secured nine freezing orders, restraining £21.1 million in assets.
New rules requiring clear, fair, and non-misleading cryptoasset promotions are part of the FCA’s measures to protect consumers in the evolving digital currency market.
Additionally, the introduction of the Consumer Duty mandates firms to demonstrate beneficial outcomes for consumers, affecting over 42,000 firms.
Under the leadership of Ashley Alder and CEO Nikhil Rathi, the FCA has reinforced its commitment to supporting innovation and balancing the needs of the financial ecosystem, contributing significantly to the health and success of the UK financial services sector.
Deepfakes are a rapidly growing insurance fraud issue, prompting the City of London Police and industry professionals to take action and strengthen their defences.
The nature of these frauds is becoming more sophisticated than ever, with insurers having to deal with swindlers who generate fake documents and imaging instead of facing traditional “Cash for Cash” fraudsters.
During a conference, Detective Chief Inspector Tom Hill, Head of the Insurance Fraud Enforcement Department, expressed his concerns about the growing threat posed by deepfakes, explaining how fraudsters exploit advanced technology to falsify claims and avoid detection.
According to a recent 2024 Insurance Post Fraud survey, more than 83% of respondents have revealed that opportunistic claims fraud is increasing fast.
What’s more concerning is that Identity fraud climbed from sixth place last year to the fourth most significant category of increasing fraud based on the same data.
Kat Cunningham, Senior Development Manager at Aviva, noted that the insurer experienced a 25% rise in application and identity fraud, primarily within the broker sector, during the first half of 2024 compared to the previous year.
She said; “Aviva recognises the importance of identifying potential fraud as early in our processes as possible as this has been a key transformation area for us over the last 12 months.”
She also adds that; “Fraudulent documents have become more sophisticated and harder to spot. ‘Clean’ risks are being presented to insurers in order to avoid detection.”
Cunningham also noticed that sometimes the ghost broker encourages the victim to generate the fraudulent quote on their own. Afterward, the victim pays a fee directly to the ghost broker before settling the payment to the insurer with their card.
Regarding investment priorities and ways to stop or prevent insurance fraudsters, respondents prioritised investment in access to broader shared data, while photographic recognition technology rose to second place due to increasing concerns about identity fraud and deepfakes.
Head of Fraud at Ageas, Fiona Reeve, emphasised the importance of intelligently using data to monitor customer behaviours and identify anomalies requiring further investigation.
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