What’s the value of Fair Value Assessments?

None of us voted for the new Product Oversight and Governance regulation that led to Fair Value Assessments, and all of the additional work that went with it. Two years on, how do we feel about it now?

If you’d asked most insurers, MGAs, and Scheme brokers if their products offered fair value for the target market back then, they’d have said ‘of course’. But the regulation was brought in because there wasn’t a consistent way to evidence this.

The initial phase of evidence gathering was cumbersome. Not so much the review of claims, declinatures, service, pricing, and product metrics like premium and loss ratios, because we all had this in abundance.

The challenge was to evidence what the distributor does with the product. We’d previously relied on our agency management and business development teams to identify problems with distributors, but this didn’t give us the evidence needed. We didn’t have the data to show who else was in the distribution chain, what they did, and how they demonstrated they were adding value in return for their commission. Gathering this data was a challenge because insurers needed to obtain information, and there was no agreed format, until BIBA kindly stepped forward to help their members deal with multiple manufacturer requests.

Now that we have the processes and procedures in place, how do we use them to create more value?

From an Ecclesiastical perspective, we’ve updated our product development process and used it on all new product builds, including those we co-manufacture with delegated authority partners. Much of this is what we’d already been doing, but I wanted to highlight the elements we’ve found most insightful for brand new products.

Understanding potential customer vulnerability is critical and starts with an analysis of the target market. Who are the likely purchasers of the product, and are they likely to exhibit vulnerable characteristics? For some sectors, the vulnerability is obvious, but that’s not always the case, so we have to challenge our analysis of the customer group. This links to customer insight, too. In the MGA and Scheme sectors, where differentiation is key, understanding the customer's needs now and horizon scanning to spot their future needs are essential. We can’t just repeat what has always been offered. The time taken to research and analyse will lead to a stronger product and therefore better customer outcomes, but it will take longer, so the proposed live date of the facility needs to be realistic. If you rush through the process to hit an unrealistic live date, then you’re likely to deliver a sub-optimal product.

The Fair Value Assessment has to be rigorous to ensure good customer outcomes and that the product reaches its target market via appropriate distribution. In turn, it’s likely to mean that business goals are achieved too.

So has it all been worth it? Yes, it has, and at Ecclesiastical, we welcome the opportunity to work with MGAs and Scheme brokers on their product development process and assist with meeting and exceeding customer needs.