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FCA thematic review on the fair treatment of long-standing customers in the life insurance sector


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Summary: The FCA has published its thematic review report on the fair treatment of long-standing customers in the life insurance sector. They found a 'mixed picture' as most firms were demonstrating both good & poor practices. Particular concerns were raised in relation to: exit fees & paid-up charges; standard of customer communications; periodic reviews of products; and firms’ strictly enforcing their T&Cs without due regard for customer outcomes.

In a clear call for action, the FCA’s acting Chief Executive, Tracey McDermott said:

“We expect all firms with closed-book customers to take into account the findings we have published today and ensure they are treating their closed-book customers fairly”.


As part of its 2014/15 Business Plan, the FCA announced it would undertake a thematic review to assess how firms were operating their closed life insurance books, to determine whether they were treating their closed-book customers fairly.  The FCA’s review focussed on products sold pre-2000 and was confined to issues of product administration (as opposed to how individual products were sold in the past). 

Scope and Outcomes

Eleven firms of varying sizes, types and business models were assessed during the review, which covered: individual personal pensions; whole-of-life (individual) policies; endowments; and investment bonds.

The firms that participated in the review were assessed against four high-level outcomes:

Outcome 1: the firm's strategy and governance framework results in the fair treatment of closed-book customers.

Outcome 2: the firm's closed-book customers receive clear and timely communications about policy features at regular intervals and at key points in the product lifecycle that enable them to make informed decisions.

Outcome 3: the firm gives adequate consideration to, and takes proper account of, fund performance and policy values in a way that ensures it treats its closed-book customers fairly and proportionately.

Outcome 4: the firm's closed-book customers are able to move from products that are no longer meeting their needs in a fair and reasonable manner.

Key Findings

The review found that most firms were demonstrating good practice in some areas but poor practice in others.  A small number of firms, however, were delivering poor customer outcomes across a majority of the areas assessed. The FCA has announced that six of the firms involved in the review will now be investigated by the FCA’s enforcement division (in particular, to establish whether customers may have suffered detriment as a result of the firms’ practices).

The FCA stated that it has particular concerns in relation to:

Strict compliance with T&Cs

Whilst delivering against contractual T&Cs is an important part of treating customers fairly, the FCA considers that focussing solely upon what the T&Cs require, without considering wider outcomes, may not deliver fair outcomes for customers.  Accordingly, the FCA stresses that firms need to go beyond the strict contractual position in order to assess their duties under Principle 6.

Effective review of products

Most firms sampled by the FCA did not carry out effective review of products to assess whether customers were getting fair outcomes.  The FCA consider that firms should check, through periodic product reviews, that closed-book products remain fit for purposes and continue to provide the benefits they were originally designed to provide.

Standard of client communications

The FCA criticised firms for not communicating frequently enough with their customers, and noted that those who do communicate often do so poorly.  The FCA has emphasised that communications to customers must comply with the regulatory requirements in place at the time when the communication is made, not at the time when the product was sold.

Exit fees and paid-up charges

The FCA found that customers were often not told that they would have to pay exit or paid-up charges, or that they had paid or were paying such charges. 


Thematic reviews are a strong indicator of the FCA’s current supervisory and enforcement priorities, and provide useful guidance on the standards that the regulator expects.

To minimise the risk of regulatory scrutiny, we would advise firms to consider the FCA’s findings carefully and to review their own treatment of closed-book customers to ensure that they are being treated fairly. By taking a more holistic approach to customer outcomes (rather than delivering precisely what is set out in T&Cs), firms can demonstrate to the FCA that their customers’ interests are at the heart of their culture and business model.

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