The FSA says life offices are under pressure to drive up profits and run the risk of creating consumer detriment by pursuing aggressive growth strategies.
The FSA’s retail conduct risk outlook, published this week, says the continued net outflow of assets from life companies suggests firms will need to make significant changes to their business model over the medium to long term.
It says: “Some life insurers are looking to adopt aggressive growth strategies to increase profits and earnings. There is increased potential for this to come at the expense of treating customers fairly and creating consumer detriment through misselling, poor product design or low service standards.”
The FSA is also concerned some insurers have poor governance and control practices around their unit-linked funds, which could lead to inadequate disclosure to consumers and may increase the risk that the insurer fails to manage the fund within the stated risk profile.
It is also worried firms may fail to make the appropriate system changes needed to comply with the European Court of Justice ruling which bans gender-based pricing from December 21.
The FSA says: “The unprecedented extent of concurrent changes affecting life insurers continues to put significant pressure on their business models.
“Regulatory initiatives will significantly influence the life insurance sector. The combination of the RDR, Solvency II and the introduction of Nest brings opportunities to some firms but also represents a significant challenge for the sector.”
Atkinson Bolton Consulting director Simon Gibson says: “There are arguably too many old-style businesses, including life companies. I take no joy in saying this but it is inevitable that some will go to the wall.”