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Product Governance and Oversight

In the Sales and Demands and Needs section of the customer journey lifecycle we spoke about ensuring fair value and matching customers to products that meet their requirements.

Having effective product governance and oversight in place ensures that products are designed to meet the needs of the intended target market and they provide fair value, in alignment with the Products & Service and Price & Value outcomes expected under the Consumer Duty.

Monitoring and Review of Products

The Financial Conduct Authority (FCA) has increased its focus on how insurance products are designed and distributed to ensure that the best interests of the customer are taken into account, products meet customer needs and provide long term fair value.

The FCA PROD handbook includes updated rules and guidance introduced by the ‘General insurance Pricing Practices Market Study’ in October 2021. This means that in addition to having robust product approval processes for launching new products or significant adaptations to existing products, manufacturers and distributors are required to regularly review their products and distribution strategies to ensure they continue to offer fair value. If this is not the case, products must be withdrawn or amended.

Product Lifecycle

New and existing are subject to continual assessment, to ensure that at inception and throughout the product lifecycle:

  • Products are customer-centric, providing good outcomes and enabling customers to meet their financial objectives
  • Customer needs, including vulnerabilities, are understood and met
  • Products have been effectively designed to meet the needs of the identified target market
  • Products are appropriately sold
  • Products are simple and easy to understand; complexity is avoided
  • Products provide fair value
  • Product performance is regularly reviewed and acted on

Ensuring fair value

Monitoring fair value will ensure that the premium customers pay reflects the type and quality of the product and service they receive from their insurer and intermediary.

Insurers and intermediaries need to partner and work together to truly understand the product and services they provide to customers. This includes the sharing of information to assist in the fair value assessment and setting remuneration at levels which reflect the service being provided.

What does this mean?

Intermediaries will need to engage with insurers to understand the features, benefits and exclusions and the intended target market of each insurance product, as well as the outcome of the product fair value assessment. This information can be found within the AXA Commercial Target Market and Fair Value Statements.

Insurers will liaise with intermediaries where they require information from them to help with the assessment of fair value. This may include details about the services the broker and other parties in the chain provide, fees charged to customers, types of ancillary products sold, and premium finance. At AXA, we use a short risk-based questionnaire to help intermediaries provide this information.

Brokers should review their own distribution arrangements at least every 12 months to ensure they provide value, assessing factors such as:

    • The total cost of the insurance product to the customer when including broker fees and administration costs
    • The impact on value of any other products or services sold alongside the main product such as add-ons and premium finance
    • The services provided by each party in the distribution arrangement, and whether the cost which is passed on to customers is reasonable compared to the benefit
    • Any conflicts of interest in the distribution arrangements which may impact value
    • Whether the product is being distributed to the intended target market

If intermediaries identify that fair value is not being provided by the distribution arrangements – for example, remuneration does not represent the level of service provided by one or more distributors in the chain, or the product is distributed to customers outside of the target market - they should take appropriate action to remediate, mitigate or prevent further harm as well as notifying insurers.

Co-manufacturing Arrangements

Co-manufacturing may occur where AXA Commercial and our broker partners work together to design, create and provide a product or proposition that meets customers’ demands and needs.

In most instances, AXA Commercial will be the sole product manufacturer. However, there are occasions when a broker has responsibility for autonomously determining the essential features and main elements of an insurance product (including it coverage, price, costs, risk, target market and compensation and guarantee rights) and be deemed a co-manufacturer.

Roles and responsibilities for Product Governance and Oversight activity between AXA Commercial and our co-manufacturer partners must be documented in contractual agreements.

Co-manufacturing brokers should have controls or checks are in place to ensure that they are fulfilling their roles and responsibilities in relation to product governance, with appropriate outputs and actions.

Questions to ask

  • Do I understand the characteristics of the insurance product and its identified target market?
  • Am I selling to the intended target market?
  • Have I reviewed the distribution arrangements to ensure customers are receiving fair value?
  • Where requested, have I provided the insurer with information to support the review of the product and assessment of fair value?
  • Have I reviewed the outputs of the manufacturer Target Market Statement and Fair Value Assessment?
  • What are my responsibilities as a co-manufacturer (if applicable) and what activity am I completing to meet these?