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FCA gives Insurance Firms guidance on areas for resilience improvement

Last week the Financial Services Conduct Authority (FCA) released a statement that summarises the insights they gathered from a sample of 47 insurance firms they surveyed recently.

The purpose of the survey was to assess how the firms had so far responded to the regulator's final operational resilience rules and guidance. 

Here are the key observations gathered from the survey, highlighting both examples of good practice and areas for improvement:

Examples of good practice

The FCA noted that it was encouraging to see that some firms demonstrated a clear understanding of the rules. This included firms that:

  • identified all the important business services (IBS) expected for the firms’ business model
  • considered possible harms at each point of the customer journey including purchasing, amending and renewing a policy, as well as the ability to make a claim or a complaint
  • provided considered examples of the types of harm a consumer may experience, differentiated by:
    • product type
    • customer profile
    • distribution method
  • provided carefully calibrated tolerances with accompanying rationales and possible alternatives
  • correctly identified that no intolerable harm arose from their services being unavailable as similar products were available and easy to substitute
  • considered the expectations to consider the impact on:
    • the financial stability of the UK economy, in line with section 3.15 of PS6/21
    • safety and soundness and policyholder protection, in line with section 2.5 of SS1/21 (observation specific to dual regulated firms)

Areas for improvement

The FCA also noted areas that required further improvement, including firms that:

  • did not demonstrate an understanding of the FCA and PRA guidelines or had not yet applied them fully to their operational resilience programmes
  • did not identify important business services that would reasonably be expected for the firm's business model or included internal or irrelevant businesses services
  • identified important business service areas inconsistently between internal departments without rationale or justification
  • did not consider consumer harm from being unable to purchase, amend or renew products
  • applied unsuitable answers to services underpinning both corporate and commercial products without consideration of the end-user
  • did not meaningfully consider the impact of unavailable important business services on vulnerable customers
  • appropriately identified high levels of consumer harm due to an unavailable important business service but set impact tolerances that seemed comparatively lenient
  • provided broad or generic answers that had been applied across all identified important business services or impact tolerances
  • copy-pasted the impact tolerances relating to intolerable customer harm for those relating to financial stability, safety and soundness and policyholder protection without appropriate rationale (observation specific to dual regulated firms)
  • selected extremely short impact tolerances (without recognising their practicality) or extremely long impact tolerances (by ignoring the reputation and other consequences of operational disruptions)
  • misunderstood the FCA's definition of internal services or included internal services among the list of important business services

Chris Moran, one of FourthLine's operational resilience expert consultants recently wrote a blog specifically warning insurance firms about specific pitfalls to avoid when selecting their important business services. You can read his blog here now.

How FourthLine can help:

FourthLine is working with a number of Insurance firms to help them with Operational Resilience enablement, through a mixture of end-to-end consulting and resourcing options.

Download our Operational Resilience Service Deck here now>

To find out more about how we can help you with your Operational Resilience framework, click here>

How FourthLine can help:

FourthLine is working with a number of financial service firms to help them with Operational Resilience enablement and Outsourcing and 3rd-Party Risk Management, through a mixture of end-to-end consulting and resourcing options.

March 28, 2022
Jakes de Kock
Jakes is FourthLine's Marketing Director. He specialises in omni-channel, tech-enabled inbound marketing strategies to drive business growth within the b2b sector.
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