I hope you are sitting comfortably as I now present the findings of the FCA’s latest probe, CBeebies style, for your consideration.
Little Red Riding FCA knocked on the door of many general insurance intermediaries and peered into their cottages to try and identify if they were managing potential conflicts of interest.
Peeping at what most readers would immediately spot as wolves in Granny’s clothing, they tried to spot whether there were conflicts of interest at intermediary businesses that receive revenue from both their customers and insurers.
Inherent conflicts within insurance intermediaries are not being properly managed, the review by the Financial Conduct Authority found.
After looking at seven of the largest intermediaries who serve small business clients, the FCA concluded that in some firms, control frameworks and management information have not developed at the same pace as business models.
The regulator found there was increased risk of conflicting interests where firms fulfilled multiple roles in the distribution chain and acted as agent for both the customer and insurer in the same transaction and some intermediaries relied on disclosure as the main way to address conflicts of interest rather than having effective control frameworks in place.
Disclosure provided to customers was sometimes very generic and unlikely to meet their information needs or enhance their understanding; and the regulator found conflicts of interest were not always effectively mitigated in relation to add-on insurance or services, premium finance or where the cost of insurance is borne by a third party.
Commission rates for add-on insurances and services varied widely, and the FCA found some intermediaries were earning commission levels for add-on of as much as high as 100 per cent.
100 per cent? Nice work if you can get it, I am sure you will agree.
What did Little Red Riding FCA do when she found Granny General Insurance Intermediary looking suspiciously furry with big, hungry, pointy teeth?
Well, Little Red Riding FCA waggled her finger and said all intermediaries should take note of the findings and ensure any conflicts are appropriately managed.
Now, forgive me if my memory fails me but I am sure I was promised a Wood cutter-style regulator to replace the Financial Services Authority, which was not so much a boy who cried wolf as a boy who never managed to spot a wolf until it bit consumers on their bottoms.
If you ask me Little Red Riding FCA wants to be careful or she will get her waggling finger bitten off by some of these wolves in Granny’s clothing.
