Annual Insurance Review 2024: Financial professionals

In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Financial professionals.

Key developments in 2023 

The biggest change for the advisory market in 2023 was the implementation of the FCA's Consumer Duty, which came into force on 31 July 2023. The Consumer Principle (new Principle 12) requires that firms act to deliver good outcomes for retail customers, and this marks a move from rules-based regulation toward outcome-based regulation. 

It's too early to say specifically what difference the Duty will make to the way claims and complaints are framed and how the Courts / Financial Ombudsman Service will treat them. However, Abbi Thomas (the Chief Ombudsman) did say in June that they did not expect that the Duty would have a significant impact on how they decide complaints. Additionally, we are already seeing some evidence of how the FCA will approach this, as nine banks and building societies were asked to provide value assessments on savings products in September following the FCA's concerns that they were not passing on the benefit of interest rate rises to consumers. Also, in November the FCA confirmed this was not a 'one and done' or 'box ticking' exercise and that the Duty is intended to be part of a firm's culture and how they do business. 

The FCA has assigned additional funding to undertake supervisory work in this area which, combined with a new Rule (at PRIN 2A.2.5R) requiring firms to take action to rectify foreseeable harm that it identifies from any source, creates an environment that is likely to generate an increasing number of regulatory complaints and past business reviews going forwards.   

What to look out for in 2024 

We have already seen some evidence of how the FCA will approach enforcement under the Consumer Duty, but the first large scale indication of its approach is expected from the retirement income advice review, the results of which are expected before the end of the year. That review will link to the FCA's findings on lifetime mortgages, published in September 2023. This noted evidence of borrowers' income and expenditure not being properly considered, inadequate discussions about alternative options and sales being incentivised at the expense of both quality of advice and good consumer outcomes. Unsurprisingly, and as we can expect from the FCA going forward, the stated expectations resulting from the review are framed through the lens of the Duty with particular emphasis on acting to deliver good outcomes for consumers. 

The retirement income review itself focuses on an area that has become more complex following the pension freedoms. It will look at how consumer needs are being met, not only through the prism of the Duty, but the ongoing cost of living crisis. Given the relatively flat performance of most investment markets in recent years (and the temptation for consumers to draw heavily from pension funds to make up income shortfalls in the current climate) it's possible that the review could uncover some poor practice.  If so, firms will no doubt be expected to take swift action in resolution in accordance with PRIN 2A.2.5R. Firms (and their insurers) should bear in mind that, even if regulatory breaches are identified, a legal liability will still need to be established before redress is payable under a past business review.

Written by Esme Watson.