global insurance management

Sales Incentives


Mar 27 2013

Sales Incentives

Relevance:                   All firms.

Action required:           Review any incentive schemes in operation to ensure mis-selling is not encouraged.

Last year, the FSA conducted a review of the various incentive schemes they believed were being used to encourage increased sales.  The chosen firms reviewed were from banks, building societies, insurance companies and investment firms.

In September 2012, the FSA published the results of the review along with a consultation offering guidance designed to “help financial firms avoid creating and operating incentive schemes that drive mis-selling.”

The review involved different types of sales forces selling products such as investments, pure protection, general insurance, mortgages, equity release and packaged bank accounts.  It also covered different methods of sales distribution, including telephone sales, face-to-face sales at firm branches and sales people working from their own location.  Last but not least, they looked at the remuneration of both front-line sales staff and their managers.

The review determined that most firms involved have incentive schemes that can drive mis-selling and do not have effective systems and controls in place to adequately manage the risks.

Finalised Guidance was then issued in January this year and applies to all firms that deal with consumers and have sales staff or advisers who are part of an incentive scheme.”

This piece of work has looked at financial incentives and is part of the process of Risk Management that the FSA expects firms to consider regularly.  They believe that sales targets and performance management will influence the behaviour of sales staff as will any incentive schemes in areas such as complaints handling, claims processing, mortgage arrears and customer retention.

The FSA states that it expects firms to:

  • properly consider if their incentive schemes increase the risk of mis-selling and, if so, how;
  • review whether their governance and controls are adequate;
  • take action to address any inadequacies – this might involve changing their governance and/or controls, and/or changing their schemes;
  • where risks cannot be mitigated, take action to change their schemes; and
  • where a recurring problem is identified, investigate, take action and pay redress where consumers have suffered detriment.

So, the warning has been given and if they have not already done so, firms should take appropriate action. 

Depending on what response they get, the FSA – but actually the new FCA regulator- will remain on alert and be ready to introduce changes to or strengthening of current rules in this area.

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