FCA claims review cautiously welcomed by UK buyers

The UK's Financial Conduct Authority (FCA) published its work plan for the year ahead in its Business Review and related Risk Outlook on Monday. For non-life insurance, the FCA said that it will focus on two main areas, wholesale insurance markets and commercial claims. The latter should be of particular interest to corporate insurance buyers because risk managers have expressed frustration over insurer claims service, as well as concern over the performance of insurance contracts, especially for large claims. Although expected, the FCA has only just confirmed that it will now pursue this thematic work on commercial claims. It has given no details of the scope of its thematic review.hideIn its Business Review it said: "Building on findings from current retail claims work, we will consider whether commercial customers' expectations are met in the claims process, where poor behaviour could have a wider impact on trust in the market, as well as leading to poor customer outcomes." A spokesperson for the FCA said that details of the review will be released in the third quarter of 2014 when the regulator expects to publish the results of its initial scoping work. Airmic's chief executive officer John Hurrell welcomed the move, but noted that improving the efficacy of insurance contracts was more likely to result from the proposed reform of commercial insurance contract law under the Marine Insurance Act, as well as better market practices. "We see this as more of a market and legal framework issue than a regulatory issue," he told Commercial Risk Europe. Mr Hurrell believes that a market solution to commercial claims would be preferable to regulatory action. Over the past five years Airmic has worked with insurers and brokers on a number of initiatives to improve insurance contract efficacy–such as agreements on reservation of rights and basis clauses–and is currently working on an insurance efficacy guide. "Our efficacy guide will focus more on what all parties in the transaction, including buyers, brokers and insurers, should be doing rather than calling for regulatory changes," he said. As well as claims certainty, the FCA review will also focus on poor claims performance by some insurers, according to Ben Bolton, Chief Executive of consultancy Gracechurch. He noted that the thematic review reflects findings from research conducted by his company, stating: "While the market's service performance improved in the last year, the improvement in service is not universal." Airmic expects to be involved in the claims review once it gets underway. "We shall be in regular touch with the FCA and assist them where requested," said Mr Hurrell. But again Airmic believe this is not an issue best tackled by regulation. “Airmic would not see this as a regulatory issue. Poor service, if it exists, is a market issue which buyers tackle by switching to providers who give the required level of service. Generally, claims services are efficient and meet clients’ needs. Most claims problems result from pre-inception issues (e.g. policy wordings, disclosure issues etc) rather than as a result of poor claims service,” said Mr Hurrell. In its Business Review the FCA also announced that it will launch a thematic review into wholesale insurance markets. It said that it will look into the 'key risks in complex distribution chains', including the cultural risks relating to product design, sales and post-sales handling. It will also aim to improve the way intermediaries identify and manage conflicts of interest. However, this work is likely to focus on consumers and small to medium-sized businesses, rather than large corporates. "We will look at distribution chains in firms that operate in wholesale markets, but also looking through to the impact on retail and small commercial customers," said the FCA. "I don't see the need for the FCA to prioritise the larger commercial sector where the insurance supply chains are visible and transparent and where the buyer has a significant contribution re programme construction and the identity of markets to be involved," said Mr Hurrell.

FCA claims review cautiously welcomed by UK buyers

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