FCA expresses concern over use of Delegated Authorities in General Insurance

A recent FCA report on the use of delegated authorities in general insurance serves as a warning to insurers, in particular, to look carefully at whether current arrangements are "fit for purpose".  Where they are not, changes must be made.  The FCA can be expected to take action against firms whose mishandling of this type of arrangement has caused customer detriment.

Key points arising from the report (TR15/7) include the following:

• Insurers may be concerned by the extent to which arrangements that they have with third parties might be regarded by the FCA as "outsourcing", particularly in the context of binding authorities.  They will need to take a close look at whether the approach they have adopted aligns with the FCA's broad interpretation of the term "outsourcing".
• The FCA's customer-centric approach means that conduct risks associated with delegating to a third party must assume much more importance than at present.  The idea that insurers should take greater responsibility for the actions of other firms in the distribution chain (many of which are themselves regulated) may be particularly unwelcome.
• Insurers should have taken steps by now to ensure that outsourcing practices satisfy Solvency II requirements coming into force on 1 January 2016.  Issues highlighted by the FCA suggest that further work may still be needed by some insurers.

Our briefing, which can be found here, considers the FCA's report and its implications for general insurers and intermediaries.