All insurers - including protection providers - will have to gather evidence to show their products offer consumers fair value under new product governance rules which come into force today (October 1).
Insurers will have until September 30, 2022 to complete their first annual ‘Fair Value’ assessments.
This means the protection industry will need to show its life insurance, critical illness and income protection premiums are balanced by the quality of benefits and services consumers receive.
Providers which fail to do this work over the next year “risk regulatory action”, according to the FCA.
“We are very comfortable with that deadline,” Peter Hamilton, Zurich's market engagement head, told FTAdviser.
“While the bulk of the changes relate directly to general insurance, we will need to be able to evidence ongoing fair value on protection as well, which is the right challenge to have.”
Guardian’s chief executive Katya MacLean said the FCA’s rule change had “important implications" for the protection insurance sector.
“The regulator has a clear expectation of all insurance providers and distributors to make sure, and to be able to demonstrate, that they’re treating all customers fairly,” MacLean explained.
Guardian, which describes itself as a ‘protection challenger’, came to the market in 2018.
MacLean said the provider had been working on its proposition to achieve a higher likelihood that clients will meet the definitions required to claim, more certainty at the point of claim, and to speed up payouts - all things which could come under the FCA’s fair value definition.
In August, the FCA issued a warning to insurance firms ahead of the October 1 deadline, airing concerns “many firms are likely to be unprepared” for it.
It identified an “insufficient focus on customers, outcomes and product value”, and “shortcomings in governance and oversight of products” as the biggest weaknesses.
A spokesperson for the Association of British Insurers has since told FTAdviser: “Significant work has taken place across the industry to meet the enhanced product governance rules, which build on already existing regulation.”