Last month the FCA launched a Discussion Paper on the regulation of commercial and bespoke insurance. The consultation aims to review the protections in place for both small and large commercial customers and make any necessary changes. At the core of this, the regulator wants to ensure a balance between appropriate protection for consumers and the proportionality of the responsibilities on companies involved in the manufacture and distribution of the products e.g. “not placing unnecessary regulatory costs on firms or impacting innovation”1.
But what does this mean for MGAs?
The FCA is seeking to clarify the roles of co-manufacturers of insurance products. A co-manufacturer is defined by the regulator as “a firm…where they can determine or materially influence the manufacture of a product or service. This would include a firm that can determine the essential features and main elements of a product or service, including its target market”2.
If an MGA or ‘specialist intermediary’ is the driving force behind the creation and design of the product, then, in theory, there will be more onus on them in terms of their responsibilities for the monitoring and review of the product and the issue of documentation, such as target market statements and fair value assessments. Of course, this is to be expected because they will have the greatest knowledge of the product and will understand what MI needs to be collected from the distribution chain. If, on the other hand, the MGA is distributing an insurer’s standard (or slightly modified) product, the insurer will be expected to control the process and the MGA will, in theory, have less to do in terms of a co-manufacturer’s responsibilities.
It is hoped this will reduce the amount of duplication of effort currently involved in producing MI, data analyses, fair value assessments etc. At present, the FCA PROD rules require that each co-manufacturer must have a product approval process in place and firms have pointed out to the regulator that this leads to duplication of effort as each firm is often reviewing the same sets of data in order to carry out their assessment. In the Discussion Paper, the FCA says that it wants to ensure that the appropriate level of protection (for customers) is maintained but that the responsibilities of co-manufacturers remain ‘proportionate’. It has suggested that the rule changes may allow one manufacturer to be designated as ‘Lead’ and allow co-manufacturers greater flexibility in determining their respective responsibilities.
Consequently, we hope that the outcomes of the consultation should provide more clarity for MGAs rather than more work. In response to the FCA’s request for feedback, the industry body, MGAA, is preparing to present a consolidated response to the regulator on behalf of the MGA sector. We would encourage MGAs to provide input to this survey, which you can do so here: https://www.mgaa.co.uk/resources/fca-discussion-paper-dp24-1/. Deadline for completion is Tuesday 3rd September 2024.
If you want to discuss the contents of this Discussion Paper or have any other questions relating to the launch of MGAs then please don’t hesitate to contact the team at [email protected].
About OneAdvent
Focused on getting insurance businesses to market – and fast – OneAdvent brings its sector expertise and technical know-how to bear for forward-thinking insurance businesses around the world. Collaborating with established industry players and entrepreneurial start-ups alike, we help our clients turn innovative ideas into genuine success stories.
We’re committed to challenging the status quo in a traditional, highly-regulated environment. With continued investment in our business and an empowering, hands-off approach, we’re ready to take advantage of the changing face of insurance. Bringing agility, flexibility and creativity to the market, OneAdvent is the industry’s innovation accelerator.
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