Product oversight and governance is where conduct risk in insurance is created or prevented. By the time a poor value product reaches distribution, the harm is largely designed in. PROD 4 and the Consumer Duty together require manufacturers and distributors to demonstrate, with evidence, that the products they put into the market deliver fair value to the customers who buy them.
Manufacturer obligations
A manufacturer must operate a product approval process addressing several requirements.
Target market identification. Defined by customer needs, characteristics and objectives, with sufficient granularity to be usable by distributors. A target market of "retail customers requiring cover" is not a target market.
Product testing. Including scenario analysis of how the product performs for customers in the target market, and identification of customers for whom it is not appropriate.
Value assessment. An assessment of whether the product provides fair value, considering the total price the customer pays, the benefits and quality of service, and the expected costs of distribution.
Distribution strategy. Selection of channels appropriate to the target market, with information sufficient for distributors to understand the product and its intended market.
Ongoing review. Regular review triggered by defined events and by data indicating that outcomes differ from expectation.
What fair value evidence looks like
| Dimension | Weak evidence | Defensible evidence |
|---|---|---|
| Price | Premium benchmarked against competitors | Total cost including fees, premium finance, add-ons and mid-term charges |
| Benefits | Description of cover | Claims frequency and acceptance rates by cohort |
| Service | Service standards documented | Actual handling times, complaint root causes, cancellation reasons |
| Distribution costs | Commission percentage stated | Analysis of what the distributor does for the remuneration received |
| Cohorts | Portfolio averages | Segmented analysis including low-claiming and long-tenure customers |
The critical test is whether any identifiable group of customers pays materially more, or receives materially less, without justification. Common examples include customers who never claim on an add-on, customers paying premium finance charges disproportionate to the credit provided, and long-tenure customers whose renewal pricing has drifted from new business pricing.
Distributor obligations
Distributors are not passive. They must understand the manufacturer's target market and value assessment, distribute only within that market, and assess the value of their own services and remuneration. Where the distributor's remuneration is not justified by the services provided, the distributor erodes fair value even if the underlying product is fair.
Where a distributor charges its own fees, arranges premium finance or bundles ancillary products, the total customer cost must be assessed against the total benefit, and that assessment must be shared appropriately with the manufacturer.
Information flows between manufacturer and distributor
The regime depends on two-way information. Manufacturers need distribution data to review outcomes: sales volumes by channel, cancellation rates, claims experience and complaints. Distributors need target market and value information to distribute properly. Weak information flow is one of the most frequently identified failings, particularly in chains involving multiple intermediaries.
Board reporting
The board should see the product review calendar and completion status, the value assessment conclusion for each material product, outcome data segmented by cohort and channel, any product where value is marginal and the action taken, and distribution chain analysis for products with multiple intermediaries.
Our Consumer Duty board report guidance covers how this evidence should be presented alongside the wider outcomes assessment.
About Regulatory Counsel
Regulatory Counsel advises UK and international financial services firms on authorisation, prudential and conduct requirements, governance, financial crime and regulator engagement.
Our insurance work covers product oversight and governance framework design, target market definition, fair value assessment methodology and independent review, distribution chain and remuneration analysis, premium finance and add-on reviews, and board reporting.
Contact our regulatory team at info@regulatorycounsel.co.uk.
This article is provided for general information and does not constitute legal or regulatory advice. Firms should confirm the current position against FCA publications and take advice on their specific circumstances.
Frequently Asked Questions
A product approval process covering identification of a granular target market, product testing, a fair value assessment, an appropriate distribution strategy with information for distributors, and ongoing product review triggered by defined events and outcome data.
An assessment of the relationship between the total price a customer pays, including fees, premium finance and add-ons, and the benefits and quality of service they receive, evidenced with outcome data rather than modelled assumptions alone.
Yes. Distributors must distribute only within the manufacturer’s target market and must assess whether their own services justify their remuneration, since distribution costs can erode the value of an otherwise fair product.
In add-on and ancillary products with low claims utilisation, premium finance charges disproportionate to the credit provided, long-tenure customers on drifted renewal pricing, and long distribution chains with cumulative remuneration.
Manufacturers must supply target market and value information, and distributors must supply sales, cancellation, claims and complaints data sufficient for the manufacturer to review whether outcomes match expectations.