Fair value is a key focus for Lloyd’s and the FCA. We aim to support the market in ensuring that all Lloyd’s customers receive fair value from the products and services that they purchase in the Lloyd’s market.
Fair Value Principles
In 2020 Lloyd’s introduced five Fair Value Principles. Through these principles we look to encapsulate what Lloyd’s considers to be value for our customers and how we expect Lloyd’s policyholders to be treated. We hope to express through these principles what Lloyd’s stands for when we talk about value for Lloyd’s customers.
Products meet a genuine need of the customer
The product will provide cover which will meet a genuine need of the customer to whom it is sold. Sales incentives will not encourage the sale of products outside of the target market.
Products are reasonably priced reflecting the level of cover provided
The price of the product and the cover it offers will be reasonable, including in comparison to similar products in the market. The price of the product will not be dependent on factors which might unfairly disadvantage customers i.e. loyalty pricing.
The acquisition costs, fees and charges are transparent and commensurate with the services that each party provides
The acquisition costs, fees and charges associated with each party in the distribution chain will be commensurate with the work carried out by them, and not reach levels that negatively impact the product’s value.
The terms and conditions of a product and the sales process ensure that customers understand what they are buying
The customer journey (including the policy wording and associated documentation) will make the features of the product clear to the customer. There will be no unreasonable barriers to purchasing the product.
Products respond fairly and promptly in the event of a claim or complaint
The terms and conditions of the product, particularly the applicable benefits and exclusions, will respond fairly and in accordance with customers’ reasonable expectations of cover in the event of a claim. The claims and complaints service will respond quickly and effectively, in accordance with the reasonable expectations of customers in the event of a claim or complaint and meet the managing agent’s standard of service. There will not be any unreasonable barriers to making a claim or complaint.
Fair Value Referrals
Fair Value referral criteria
The referral criteria apply to arrangements under which a product may be distributed:
- to an individual, microenterprise or SME
- worldwide including LIC business
It is the responsibility of the lead managing agent to make the referral and followers are not required to check that the referral has been made.
Where a Lloyd’s syndicate is following the company market secondary sales and high volume distribution referrals are not required even where the referral criteria are triggered.
The criteria
1. Acquisition costs at 50% or over – new and renewing products distributed via binders, line slips, consortia, master policies or open market.
2. Loss ratios of 20% or less - new and renewing binders, line slips and master policies for the products listed below where there is a loss ratio of 20% or less for renewals or an anticipated loss ratio of 20% or less for new business. The relevant loss ratio is the loss ratio net of acquisition costs. The loss ratio for renewals should be calculated over the previous five years (or however long the arrangement has been written where it has been written for less than five years). This referral criteria is not applicable to arrangements which solely provide property CAT coverage. For the avoidance of doubt arrangements which provide property CAT coverage combined with other insurance coverages (e.g. standard homeowner coverage) should continue to be referred to us where the loss ratio is 20% or less.
3. Declinature rates of 20% or above - renewing binders, line slips and master policies for the products listed below where the claims declinature rate is 20% or above over the previous 12 month period (provided there have been at least 50 claims during the period).
4. Secondary sales – new and renewing products sold alongside non-insurance products via binders, line slips, consortia or open market.
5. High Volume Distribution - new to the market, or new to a managing agent, binders, line slips and master policies that are expected to have customers that number 25% or more of the total number of eligible complainants in the managing agent’s last eligible complainant return. Subject to; if the number of additional customers will be less than 5,000 the arrangement does not need to be referred and where there is expected to be more than 50,000 additional customers the arrangement should be referred whether or not the 25% trigger is reached. These should be referred to Lloyd’s pre-bind and can be written if no enquiries are raised within 10 working days.
For the avoidance of doubt whilst the products below are taken from SUP 16 Annex 48R of the FCA Handbook, for the purposes of Lloyd’s loss ratio and declinature rate referrals, it is to be used as a general product list with no territorial restrictions.
Alloy wheel insurance
Breakdown insurance
Dental cover
Excess protection (for motor insurance)
Extended warranty – furniture
Extended warranty – electrical goods
Extended warranty – motor
Gadget (including mobile phone)
GAP contracts
Healthcare cash plan
Home – buildings
Home – buildings and contents
Home – contents
Home emergency
Identity theft
Legal expenses
Missed event/ticket insurance
Mortgage payment protection
Motor
Motorcycle
Parts and garage cover
Payment protection
Personal accident
Pet – accident only policies
Pet – lifetime policies
Pet – maximum benefit policies
Pet – time-limited policies
Single trip – travel
Travel (annual) – EU
Travel (annual) – worldwide
Tyre insurance
Vehicle cosmetic insurance
Vehicle misfuelling insurance
Vehicle pothole insurance
Wedding and party insurance
Examples:
(a) If a MA’s most recent total eligible complainant return was 60,000 and a new binder, line slip or master policy with 15,000 or more individual, microenterprise or SME customers is proposed it should be referred because the 25% trigger is reached
(b) If a MA’s most recent total eligible complainant return is 10,000 and a new binder, line slip or master policy with 4,000 individual, microenterprise or SME customers is proposed it does not need to be referred because even though the 25% trigger is met the expected number of customers under the arrangement is less than 5,000.
(c) If a MA’s most recent total eligible complainant return is 500,000 and a new binder, line slip or master policy with 52,000 or more individual, microenterprise or SME customers is proposed it should be referred because while the 25% trigger is not met there are 50,000 or more expected customers.
Fair Value Referral Process
Managing agents should complete the appropriate referral form template and email it to their Customer Oversight Manager and fairvalue@lloyds.com.
Where insufficient information is provided, the Customer Oversight Team will advise the managing agent and request that the referral is resubmitted. Lloyd’s commits to providing a response within 10 days of receiving a referral once sufficient information has been provided by the managing agent.
Where an arrangement that has already been referred to Lloyd’s is being renewed by the same managing agent that made the referral and there are no changes to the information provided in the referral template it is sufficient for the managing agent to notify their Customer Oversight Manager and fairvalue@lloyds.com that the arrangement is renewing and that there are no changes.
You can find the referral forms here:
Acquisition Costs Referral FormAssessing Fair Value
Product value continues to be a focus for the FCA as well as Lloyd’s. The FCA has implemented its own requirements in relation to product governance and fair value assessment.
To assist the market in meeting the FCA’s expectations the LMA has produced its Pricing Practices and Product Reviews Guidance.
This Guidance can be found on Lloyd's Market Association website.
Visit LMA Guidance for managing agents