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.
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 If this is not the case, products must be withdrawn or amended.
New and existing are subject to continual assessment, to ensure that at inception and throughout the product lifecycle:
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.
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:
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 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.