A strong insurance fair value assessment does not begin with a template. It begins with the proposition the customer actually receives and asks whether the overall price paid bears a reasonable relationship to the quality of the insurance product and associated services. Under PROD 4, manufacturers of relevant non-investment insurance products must identify whether the product provides fair value to customers in the target market and be able to demonstrate that conclusion over a reasonably foreseeable period, including where customers are expected to renew.
That sounds straightforward until the firm tries to evidence it. The final customer price may reflect underwriting premium, MGA remuneration, broker commission, customer fees, ancillary products and premium finance, while the quality side of the assessment may depend on cover, exclusions, claims outcomes, service standards and the practical usefulness of the product to the target market. The FCA's TR24/2 product governance review found that many manufacturers were still not adequately assessing and evidencing fair value, while many distributors did not fully understand the effect of their remuneration and services on product value.
The assessment therefore needs to show more than a conclusion. It should explain what value the product is intended to deliver, what evidence was used, what weaknesses or outliers were challenged, and why management considers the product to provide fair value after taking the whole distribution chain into account. Since 26 June 2026, PROD also expressly requires value considerations to be considered throughout the product approval process, including target-market identification, product testing and the selection of distribution channels.
Start with the intended customer value, not the spreadsheet
Before analysing ratios or competitor prices, the firm should define what the product is intended to do for customers in its target market. This should be specific enough to provide a standard against which the product can later be tested. A statement such as "the product provides peace of mind" is unlikely to be sufficient on its own because it does not explain the protection, service or practical benefit customers are expected to receive.
The intended value proposition should connect directly with the target market and product design. For a specialist commercial product, the benefit may lie in access to cover that is difficult to obtain elsewhere, specialist claims support or unusually broad protection for a defined risk. For a retail product, the expected value may depend more heavily on clear cover, a usable claims process, accessible customer support and a price that remains reasonable when all distribution costs are included.
This first step matters because the rest of the assessment should test whether the intended value is actually being delivered. If the firm cannot describe the customer benefit with reasonable precision, it becomes much harder to choose meaningful evidence or determine when a product is no longer providing value. The assessment should therefore begin with the product purpose, target market and expected customer benefit before moving into metrics.
Build the price side around what the customer actually pays
The price analysis should reflect the overall customer proposition rather than the insurer's technical premium in isolation. PROD defines value by reference to the overall price to the customer, and its fair value provisions expressly require firms to consider distribution arrangements, including remuneration, and additional products such as retail premium finance where relevant.
This means the firm should understand how the final customer price is constructed. Depending on the product and channel, that can include the underlying premium, MGA commission, broker remuneration, policy or administration fees, ancillary products and the additional cost of paying monthly. Where another firm in the distribution chain determines the final retail price, the manufacturer still needs enough information to understand whether that arrangement can undermine the intended value of the product.
The analysis should not assume that every additional cost is problematic. A specialist broker may provide advice, placement expertise or ongoing servicing that materially improves the customer proposition, while premium finance can provide a genuine benefit by allowing customers to spread the cost of cover. The regulatory question is whether the additional price has a reasonable relationship with the quality and benefit delivered, not whether the distribution chain is inexpensive in absolute terms.
Where pricing varies materially between channels or customer groups, the assessment should identify the reason. If one broker population consistently produces a materially higher customer price without an obvious difference in service or customer need, that should be visible in the value analysis rather than disappearing within a firm-wide average.
Assess quality through cover, exclusions, claims and service
Price is only half of the value equation. The firm also needs a reasoned view of the quality of the product and services customers receive. That requires more than describing policy benefits because the practical value of insurance often becomes visible only when the customer needs to use it.
Coverage, limits, excesses and material exclusions should be considered in the context of the target market. A product can contain an extensive list of benefits while still provide limited practical value if the exclusions remove much of the protection customers reasonably expect. Conversely, a narrower specialist product may provide strong value where its cover is well matched to a specific customer need and the limitations are appropriate and understood.
Claims evidence is especially important. PROD identifies information such as claims handling times, frequency, acceptance and decline rates, severity, costs and claims ratios as potentially relevant to product review and value. No single claims metric should be treated as determinative, but material patterns should be understood. A low claims ratio can have a legitimate explanation for one product and be a warning sign for another, while repeated declines for the same reason can indicate problems with product design, target market or customer understanding.
Service quality belongs in the assessment for the same reason. A policy may promise valuable cover but deliver weak practical value where customers face unreasonable delays, poor communication or barriers when they need assistance. The firm should therefore use evidence about the actual customer experience rather than assessing value only through contractual wording.
Use evidence that can prove or disprove the conclusion
The strongest assessments use a balanced set of evidence rather than searching for data that supports a predetermined positive conclusion. PROD requires firms to use all necessary and appropriate data and information available to them, and the current rules expressly point towards internal, external and distribution information when firms review ongoing value.
Claims and complaints should usually form part of the evidence where they are relevant to the product, but neither should be used mechanically. Complaint volumes need root-cause analysis because ten complaints about the same exclusion can be more significant than a larger number of unrelated service complaints. Claims data also needs context because expected frequency and severity differ considerably between insurance products.
Customer research, cancellation and renewal behaviour, service performance, broker or distributor MI and the FCA's general insurance value measures can provide additional context. External benchmarking can also help management identify whether the product sits materially outside comparable market propositions, but benchmarking should remain supporting evidence rather than the conclusion. A product does not automatically provide fair value because competitors charge a similar price.
The firm should also identify weaknesses in its evidence. If the manufacturer does not yet receive reliable remuneration data from a significant broker population, that is itself a governance issue rather than a reason to assume the distribution channel does not affect value. A good assessment should distinguish between evidence that supports the conclusion and evidence gaps that management still needs to resolve.
Analyse distribution and remuneration as part of the product
Distribution is not separate from fair value. PROD requires manufacturers, as far as reasonably possible, to ensure distribution arrangements avoid or minimise the risk of negatively affecting value, and manufacturers must be able to demonstrate that relevant distribution channels result in fair value for customers in the target market.
The assessment should therefore explain why the chosen distribution model is appropriate for the product. This includes understanding the services provided through the chain, the remuneration received by relevant participants and whether any pricing discretion or additional product can materially affect what customers pay. Where distribution economics have changed since the previous assessment, the firm should consider whether the original value conclusion still holds.
Distributors have their own responsibilities. Under PROD 4.3, a distributor of a relevant non-investment insurance product must understand the outcome of the manufacturer's value assessment and the impact its distribution arrangements, including remuneration, have on the overall value of the product. This makes information exchange a two-way control rather than a one-off manufacturer disclosure.
For firms operating through large broker populations, the assessment should be capable of identifying outliers. If one channel adds materially more cost, generates poorer service or produces different customer outcomes, management should understand why and whether the channel remains consistent with the intended value of the product.
Segment only where the difference matters
A fair value assessment should consider the target market, but that does not mean creating dozens of customer segments without a regulatory reason. Segmentation is useful where different groups experience materially different prices, benefits or outcomes and those differences could change the value conclusion.
One group may use a product feature extensively while another has little realistic prospect of benefiting from it. Customers paying through premium finance may incur a materially higher overall price than customers paying annually. A particular broker channel may add higher fees or provide a materially different level of service. Each of those differences can justify separate analysis where it affects the relationship between price and quality.
Vulnerability should also be considered proportionately. A characteristic of vulnerability does not automatically mean the product is poor value, but the firm should understand whether vulnerable customers are more likely to pay additional charges, struggle to access benefits or receive materially weaker service. The assessment should focus on differences that could alter the value judgement rather than treating segmentation as a box-ticking exercise.
Governance should show challenge, decisions and action
A fair value assessment is ultimately a management judgement, so the governance around that judgement matters. The product file should identify who prepared the assessment, what information was challenged, what limitations were identified and who approved the conclusion. The level of seniority should reflect the significance of the product and the potential customer harm if the assessment is wrong.
Management should be willing to reach an adverse or qualified conclusion where the evidence requires it. PROD states that where a firm cannot identify and clearly demonstrate fair value, it must not market or permit distribution of the product unless appropriate changes have been made. A framework in which every product invariably passes regardless of the evidence is unlikely to provide strong assurance.
Where the assessment identifies a problem, the response should address the cause. That can involve changing price, remuneration, product benefits, exclusions, distribution arrangements or customer communications. Where existing customers have suffered harm, the firm should consider whether remediation is required rather than limiting action to future sales.
Closure should also be evidenced. If management changes a broker arrangement or product feature because of a value concern, the next review should test whether the change improved the intended outcome. The assessment becomes more credible when it records not only what management concluded, but how previous concerns were resolved and whether the evidence improved afterwards.
Make fair value an ongoing product control
The fair value assessment should not be treated as a document that expires on an arbitrary annual anniversary. Current PROD requires manufacturers to determine appropriate regular product review intervals based on relevant risk factors, and firms must revisit that determination when new information emerges. For lower-risk products this can result in scheduled reviews less frequently than once every 12 months, while higher-risk products may justify more frequent review.
That flexibility makes ongoing monitoring more important, not less. The firm should know what events would trigger an earlier reassessment, such as a significant change in claims outcomes, a material increase in distribution remuneration, a new customer fee, deterioration in service or evidence that the product is reaching customers outside its intended target market.
The practical objective is a continuous evidence loop. Product design establishes the intended value, live customer and distribution data tests whether that value is being delivered, governance challenges material differences, and remediation changes the proposition when the evidence no longer supports the original conclusion.
For a broader explanation of the overall PROD product governance framework, including manufacturer and distributor responsibilities, see Regulatory Counsel's existing guide to Insurance Fair Value and Product Oversight Under PROD 4.
How Regulatory Counsel can support
Regulatory Counsel supports insurers, MGAs and insurance intermediaries with fair value assessment methodology, independent review, distribution remuneration analysis, product governance, management information and remediation. We can review a single high-risk product, a representative product sample or the firm's wider methodology and governance framework, depending on the assurance required.
Speak to Regulatory Counsel to discuss an insurance fair value assessment review.
Frequently Asked Questions
The assessment should explain the intended customer value, the total price paid, the quality and benefits delivered, the evidence used, the effect of distribution and remuneration, and why the firm considers the product to provide fair value to its target market. It should also record material limitations, challenge and any actions required.
No. Claims ratios can be useful evidence, but they need to be interpreted in the context of the product and supported by other relevant information such as claims acceptance, reasons for decline, service quality, complaints, customer research and distribution data.
Not as a universal rule for every relevant product. Current PROD uses a risk-based product review framework, so firms should determine and record an appropriate review interval and respond earlier where new evidence indicates that value may have changed.
Distribution remuneration can be directly relevant to fair value. Manufacturers need enough information to understand how distribution arrangements affect the overall product value, while distributors must consider the relationship between their remuneration, services and the value the customer receives.
PROD requires action rather than a qualified pass. The firm must not market or permit distribution of the product unless appropriate changes have been made so that fair value will be provided, and existing customer harm may also require remediation.