Some customers may possess purchased products that they did not require or were not eligible to claim below, while some were not provided sufficient information to construct an informed decision by an appointed representative acting on behalf of an insurer or authorised intermediary, the FCA said. In at least single case, it found “significant evidence” that some mis-selling had taken place, which may ultimately require consumer redress, according to a report on its findings.

The FCA has written to insurers and intermediaries to remind them that they retain regulatory responsibility for the acts of their appointed representatives, following in-depth analysis of the way in which these relationships worked at a cross-section of 15 general insurance firms of varying sizes. It has also taken action against five of the unnamed firms as a result of its review, every of which possess been banned from using fresh sales agents and two of which must also cease sales through their existing representatives, it said.

“While some principals did possess a good understanding of their appointed representatives’ activities and their obligations as principal firms, we found widespread examples of poor practices across the sector,” said Jonathan Davidson, the FCA’s director of supervision for retail and authorisations. “In multitudinous cases firms were simply failing to comprehend and manage the risks arising from their appointed representatives’ activities.”

“General insurance is a enormous and important sector and we are concerned about the potential for customer detriment arising from the lack of oversight of appointed representatives. every principal firms require to consider these findings and see again at their practices,” he said.

Insurance law expert Alexis Roberts of Pinsent Masons, the law firm behind, said that firms that either had been or currently were principals should now review their appointed representative arrangements, including those that they had in place historically. This review should also include any introducer appointed representative arrangements, which were not explicitly covered by the FCA review, he said.

“For both of these categories, firms should consider whether their ARs are suitable and whether proper consideration has been given to the nature, scale and complexity of the potential risks – to both their business model and their customers,” he said. “They should also consider whether they possess an appropriate risk management framework in place, whether that is properly reflected in the contractual arrangements and whether there is appropriate ongoing oversight and control.”

“Firms must also consider what steps should be taken to remediate any deficiencies identified on these points, including what customer redress perhaps be appropriate. Looking forwards, firms should also be considering their approaches as to how they locate fresh AR arrangements in place, in particular that they possess the proper processes and procedures that properly address the issues identified by the FCA,” he said.

There are currently over 20,000 appointed representatives in the UK, which are competent to lug out regulated activities below the supervision of an authorised insurer or intermediary acting as their ‘principal’. They include telephone sales agents, retailers, travel agents and motor dealers who market a wide range of insurance products including home, motor, travel, small business, warranty and guaranteed asset protection (GAP) products, primarily to consumer and small business companies.

The FCA identified and surveyed 190 ‘principal’ firms that operate appointed representatives, which it then narrowed down to a sample of 15 for more detailed review. Although the problems it identified were not universal, it found some issues at the majority of these firms and also intends to “perform additional toil” with some of the firms in the wider survey sample which were not investigated in detail.

According to its report, firms did not always sufficiently consider the suitability of their appointed representatives, or whether the proposed business model was appropriate and would fit with the principal’s business. Once arrangements were in place, there was frequently insufficient oversight and control of the appointed representatives’ activities, and insufficient consideration of the importance of an approved person’s role within the representative.

“These factors could lead to customer detriment and the FCA was satisfied that, in relation to a number of the sample firms, it had indeed done so,” said insurance law expert Iain Sawers of Pinsent Masons. “The biggest risk area was identified as sales, specific examples being products sold where the customer perhaps be ineligible for cover – for example, pre-existing medical conditions in relation to travel insurance.”

“The FCA also found that, when the proper controls were in fact in place, they were frequently not properly evidenced. This demonstrates the importance to the regulator of making sure that systems and controls are properly documented, plus evidence of the consideration as to whether and why these systems and controls were appropriate, whether the business model had been properly considered and the risks to customers,” he said.