The Financial Conduct Authority has set out its expectations for insurance firms with vertically integrated businesses models and highlighted the need to proactively manage whether their model supports good customer outcomes and effective regulatory supervision.

The watchdog says vertically integrated models might combine underwriting, distribution, intermediary activity, premium finance and other ancillary services. These links can create conflicts and the FCA stresses the need to identify and manage these conflicts appropriately; ensure conflicts do not become embedded in customer journeys; don’t become commercial incentives and that controls are designed to support good customer outcomes.

Chris Knight, director of insurance at the FCA, stated: “These arrangements [vertical integrations] can make good and efficient business sense. But they can also create conflicts of interest – particularly if they influence consumer journeys or potentially alter commercial incentives. This has the potential to shape decisions in ways that don't serve the customer.”

Highlighting the need to actively manage the risk, he added: “Crucially, disclosure alone is not enough. Simply telling customers about a conflict doesn't remove your obligation to manage it properly.

“You should look at how you design products and panels, how you communicate with customers, how you structure remuneration and whether your customer-facing information is genuinely transparent about commercial relationships that could affect a customer's decision.”