Insurance distribution: conduct obligations and common review findings
The FCA's insurance distribution framework, implemented through ICOBS (Insurance: Conduct of Business sourcebook) and updated to reflect the Insurance Distribution Directive (IDD) which was retained in the UK rulebook post-Brexit, governs how insurance products are sold and serviced across the retail market. The Consumer Duty has added significant new requirements on top of the IDD-derived standards, and the combination creates a demanding compliance framework for insurers, intermediaries, and ancillary distributors. The FCA's 2024 thematic review of Consumer Duty in the general insurance and pure protection markets — one of its most detailed sector-specific reviews — provides extensive guidance on what the regulator considers adequate and inadequate practice.
Product governance is the starting point. Insurers as product manufacturers must conduct target market assessments for all products, assess price and value, and provide distributors with adequate product information to enable them to sell within the defined target market. The FCA found in its thematic review that many manufacturers were not providing sufficient information to distributors, and that the target market assessments being produced were not adequately linked to the specific features, benefits, and limitations of the product. Value assessments — required to show that the premium is proportionate to the benefits — were particularly variable, with some manufacturers relying on claims ratios alone without adequately addressing the value delivered by ancillary benefits or the impact of commissions on overall consumer value.
Add-on products remain a priority concern. The FCA's long-standing concern about add-on insurance — sold alongside primary products (car insurance, travel insurance, extended warranties) in contexts where the customer may not fully understand what they are buying — has been reinforced by Consumer Duty. Firms selling add-on products must be able to demonstrate that customers are making informed decisions, that the value of the add-on is proportionate to its cost, and that the sales process does not use dark patterns or pre-ticked boxes that exploit consumer inertia. The FCA's enforcement of its add-on rules under PROD 4 has increased, and firms that cannot demonstrate compliance should prioritise review.
Renewal pricing continues to attract scrutiny following the General Insurance Pricing Practices (GIPP) rules that took effect from 1 January 2022. The rules prohibit insurers from pricing renewals for home and motor insurance above what the firm would quote a new customer for the equivalent risk. The FCA conducted a post-implementation review in 2023 and found broad compliance, but identified some firms that were using permitted pricing differentials in ways that were inconsistent with the spirit of the rules. Firms should review their renewal pricing methodology annually against the FCA's PS21/5 requirements and ensure that the pricing team's documentation addresses the specific requirements on like-for-like comparison.
Remuneration and conflict management
Commission arrangements in insurance distribution remain a significant conflict management challenge. ICOBS 2.5 requires firms to manage and disclose conflicts of interest arising from remuneration, and the Consumer Duty's price and value outcome requires that remuneration structures do not create incentives that result in poor consumer outcomes. Firms should review whether their commission arrangements — including volume overriders, profit share, and soft dollar equivalents — are adequately captured in their conflict of interest registers and whether the information they disclose to customers is sufficient to allow informed decision-making.