Darren Bagnall from Manage Your Block discusses the FCA Guidelines and looks at what documents need to be disclosed.
The Financial Conduct Authority (FCA) released the Policy Statement and Final Rules on the 29th of September 2023 following review of multi-occupancy insurance with changes made effective from the 31st of December 2023.
In the world of insurance, transparency and disclosure are key factors to make sure that everyone is fully informed about their policies. The FCA has introduced new guidelines on the disclosure of insurance documents. In this article, we aim to provide clarity on the new guidelines and what insurance documents need to be disclosed.
What Needs to be Disclosed
The new obligations covered by the Financial Conduct Authority will apply to contacts that are concluded once the rules have come into place on the 31st of December 2023. Therefore, where an insurance contract is finalised, it is imperative that disclosure documents are provided. The FCA guidelines included the following information to be disclosed:
In the consultation, we (the FCA) proposed that firms be required to disclose key information about the product and about their services. This disclosure would include:
- A summary of the features of the policy, including main benefits, coverage and exclusions of the policy, duration, and insured sum.
- The policy premium. Where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level.
- The remuneration (money paid for work or a service) which any authorised intermediaries received for arranging the insurance, as well as remuneration they pay to other parties including unregulated PMAs and freeholders.
- Information about potential conflicts of interests, such as ownership links between the intermediary and the insurer, and about the insurers with whom the intermediary may place the policy.
- The number of alternative quotes they have obtained (with further details of these to be provided on request) and a brief explanation of why they have proposed or recommended that the policy is in the interests of both the freeholder and leaseholders.
The responsibility of gathering and distributing the above information lies with the insurer and the intermediary. The insurer would be responsible for providing the policy summary and pricing information whilst the intermediary would handle renumeration, conflicts of interest and historical information. The company directly interacting with the customer would bear the responsibility of providing this information to them.
The Importance of Disclosure
Disclosing the above information outlined by the FCA encourages a wider transparency of costs. This makes it more difficult for service providers to hide unreasonable and unfair costs. If individuals involved in this process are concerned about prices involved in obtaining insurance policies and cover, they are entitled to challenge disproportionate costs.
Providing advised documents not only complies with regulations set out by the FCA but also protects consumers whilst adhering to fair value. The transparency of policies and renumeration helps to prevent misunderstandings and ensures that freeholders and leaseholders (now described as ‘stakeholders’) have a clear understanding of what they are paying for.
By making the number of alternative quotes along with further details of these acts in the best interest of both the freeholder and leaseholder.
It encourages firms and intermediaries to prioritise the consumer and ensures that they are complying with fair value instead of providing policies whereby they might receive additional benefits such as increased commission paid to themselves.
Without proper disclosure, leaseholders may be unsure of hidden fees or additional costs that may be associated with insurance policies. This may include administration fees from intermediaries and policy cancellation fees etc. Not only this but disregarding proper disclosure can also mean that freeholders and leaseholders are not fully aware of the features included within their insurance policy wordings. Therefore, proper disclosure assists leaseholders to budget effectively whilst providing them with a breakdown of all costs involved and making sure that they understand their cover.
Conclusion
The guidelines from the FCA regarding disclosure of insurance documents highlight the significance of transparent communication between insurers and policyholders. It is essential for both entities to meet their obligations. Not only during the application process but also throughout the entire policy duration. Policyholders must provide accurate and complete information, while insurers must present policy details and key information outlined by the FCA clearly and understandably. By adhering to these guidelines, the insurance industry can cultivate trust. They can also guarantee that clients are well-informed on coverage, leading to a more secure insurance environment for all.
For more information, you can read the full FCA Policy Statement and Final Rules here.
Alternatively, the British Property Federation discussed FCA Reforms to Multi-Occupancy Buildings Insurance which you can access here.
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