In summary, the FCA found that many insurance firms need to make improvements in their monitoring to enable them to determine whether they are delivering good outcomes for retail customers, as required by the Duty. For example:

• Some approaches were overly focused on processes being completed rather than on outcomes delivered.

• Some board or committee reporting contained limited insight into actual customer outcomes. This was often because of:

  • metrics/data not being comprehensive enough

  • data which lacked analysis and explanation

  • thresholds/standards in place which did not appear to be appropriately set and/or communicated

• Few firms were able to provide clear evidence of where the monitoring of outcomes had directly led to proactive action being taken to improve these outcomes, where necessary.

The FCA points out that, while inadequate monitoring itself would not necessarily result in poor customer outcomes, monitoring is essential for firms to identify and remediate them.

The publication provides more detail on good and poor practice identified by the FCA in its review.

In addition, the FCA also updated its Consumer Duty - information for firms webpage to add a new heading ‘Annual board reports’. As well as summarising relevant rules, the FCA states that from July it will review a broad sample of reports and will publish its insights to help drive good practice. Firms do not need to send their Board report to the FCA, but it does expect them to be able to provide it if asked.

Next steps

The FCA has also set out the following next steps:

• All insurers, insurance intermediaries and outsourced service providers operating within the insurance sector should consider these findings, including the good and poor practice observations. Retail financial services firms in other sectors may also find these observations useful.
• The findings should be used when firms are considering approaches to monitoring outcomes on closed products, as required from 31 July 2024. The FCA wrote to life firms in May 2024 about implementing the Consumer Duty for closed products and services to support firms in their final preparations.
• Firms can also use these findings to support them in the development of their first Consumer Duty annual report, due by 31 July 2024.
• All firms participating in the review will receive individual feedback. Where appropriate, the FCA will also consider use of supervisory tools to make sure that progress is made to meet the requirements of the Duty.
• Firms that identify gaps in their compliance with the FCA’s rules should act immediately, putting robust plans in place to address any shortcomings.

How we can help

Our Consumer Duty hub provides a number of useful resources to help firms as the second major implementation milestone approaches.

If you would like to discuss any aspect of the Consumer Duty, including the upcoming closed books review and annual board report deadlines, please get in touch with one of the people listed above or your usual Hogan Lovells contact.

Authored by Virginia Montgomery and Kirsten Barber.