Although there was the inevitable race to the line, most firms are clear on the actions needed to fully implement Consumer Duty for open products. Therefore, now firms are focusing on planning what they need to do to their legacy books of business to align them to the Consumer Duty. KPMG in the UK has drafted a general article on how to approach closed products reviews here. However, for firms with legacy With Profits business, Consumer Duty produces particular and specific additional challenges.

In this article, we explore the practical considerations for firms with closed books of With-Profits business, across both the cross-cutting rules and four outcomes in preparation for the July 2024 deadline.

We expect that Consumer Duty will be a significant fillip for activity around With-Profits funds. It will bring into focus how insurers continue to serve this population of customers in line with Consumer Duty now and as many funds foreseeably run off. We expect Consumer Duty to be a factor in whether to close the line of business, where the new principle proves problematic to evidence. Firms have various options to close business through accelerating sunset clauses and / or converting to non-profit business or using Part 26 Schemes to fully extinguish lines of business. These closure processes will need to meet the requirements of Consumer Duty and, as such, firms may gain some assurance through the use of independent experts in the closure process.

A Brief Background to Consumer Duty

Consumer Duty applies three cross cutting rules to all retail businesses and requires firms to gather evidence against four consumer outcomes.

Consumer duty pyramid illustration

The cross-cutting rules, as the name suggests, applies across all areas of dealing with retail consumers, and may require a cultural shift to put consumers at the heart of decision making. Demonstrating good outcomes requires firms to have the necessary management information to inform their decision making around Customer Duty and to be proactive in improving consumer outcomes.

KPMG in the UK has published more articles about the Consumer Duty and its impact here.

Cross-cutting considerations

Act in good faith towards consumers

Acting in good faith towards the consumer implies balancing the needs of the consumer against the profitability of the company. In With-Profits funds, this extends to balancing the needs of a range of policyholder groups with different interests in the fund. Any decisions relating to a group of policyholders may impact other groups of policyholders as well as shareholders, thereby, further complicating decision making.

Avoid foreseeable harm to consumers

Many of the With-Profits funds are closed to new business, engaged in managing the run-off of their portfolios, and distributing their Estate. Insurers have to walk a difficult line between maintaining sufficient financial strength while meeting their commitments to policyholders and releasing excess surplus. The main tool for evaluating outcomes is the run-off plan. The FCA's thematic review (TR19/3) (PDF 919KB) on the fair treatment of With Profits customers identified various issues with run-off plans including infrequent updates, a lack of monitoring actual outcomes against expected outcomes and insufficient stress and scenario testing.

As the decline of a With-Profits fund is foreseeable, firms may need to delve deeper to avoid harm as a result. We would expect firms to develop more sophisticated run-off plans with a focus on consumer outcomes as well as solvency, and that the run-off plans would consider specific policyholder groups, under various stresses and scenarios as well as management actions.

Enable and support consumers

Firms are expected to enable and support consumers to pursue their financial objectives, and this does not stop at the point of sale.

We would expect firms to continue to measure the financial objectives of a product relative to its original product literature and T&Cs, to ensure consumers have the necessary information to evaluate their options and guarantees in the contract and the purpose and value of wider benefits, and to enable consumers to communicate with the firm over various channels as they would reasonably expect.

With time, the objectives of customers need to be aligned with the firms. Firms may wish to go further to offer options to switch products or alter additional/rider benefits where these can be justified in the interests of consumers.

Four Outcomes

Products and Services — products and services are specifically designed to meet the needs of consumers and sold to those whose needs they meet

Firms are expected to consider whether products and services remain appropriate for consumers and to routinely review products and services to ensure they are operating as intended.

Consumer Duty is purposefully forward-looking, focusing on future actions to improve and evidence outcomes. Firms may have taken past actions which may have caused detriment to certain policyholder groups or may have lost contact with their consumers directly or through the loss of intermediaries. Firms are not expected to rectify past issues to Consumer Duty standards. However, this does not preclude firms from considering what more they can do going forward for the existing consumers.

As many With-Profits products are classified as legacy products, their design and build may reflect past practices and past technical capabilities. For example, With-Profits may use sample asset shares because the computing capacity did not allow monitoring of individual policy asset shares. Firms may wish to consider whether this methodology continues to provide good outcomes or whether they should develop their valuation methodologies for policies in line with current standards to deliver this.

Firms may want to consider if there is scope to simplify products and alter services to improve consumer outcomes across financial and non-financial measures. For example, firms may go beyond their contracts and offer options to switch to alternative products which better meet a consumer's financial objectives, where they can demonstrate it delivers a good outcome for the customer, and there is no unmitigated foreseeable harm.

The FCA expects a firm's policyholders to be treated to similar levels of service irrespective of their source. Moreover, the FCA expects firms to take action rather than rely on inaction to effect Consumer Duty.

Price and Fair Value — the price of products and services represents fair value for consumers

Aligned to the above, not only should products be designed in a fair and just way, but the level, style and application of charges and prices should be representative of the value and utility they provide. For example, firms will need to ensure that ad-hoc fees and charges are representative of the cost incurred and are not punitive in design or execution.

Firms may need to consider their pricing for smoothing, guarantees and other benefits and whether these are fair to all policyholders within the fund, how changes to the fund affect the fair value for all the participants, whether the current management of the fund is reflective of the expectations of the consumers and what management information is required on a regular basis to evidence this.

In essence, the value of a With-Profits policy should be considered from a consumer perspective as well as an actuarial perspective.

Consumer Understanding — communications are understandable and equip consumers to make effective, timely and properly informed decisions about financial products and services

Firms are expected to assist consumers in understanding their product so that they can make informed decisions.

With-Profits presents additional difficulties because of the complexity of design and the discretion around benefits.

We expect firms to consider their current style, volume, frequency and channel of communication, how further to enhance the consumers' knowledge, and how to measure and monitor the outcome of their communication. An example of this is measuring the effectiveness of communication channels through the type and volume of response rates.

Firms may need to enhance their legacy systems or re-platform on to modern platforms to allow more agile communication and service and to evidence alignment with FCA's Consumer Duty expectations.

Consumer Support — consumer support meet the needs of consumers, enabling them to realise the benefits of products and services and act in their interests without facing unreasonable barriers

The FCA expect firms to support all consumers equitably, irrespective of whether they are legacy consumers or new business. Firms will have With-Profits consumers who no longer have intermediaries (orphan policyholders) or which have been bought as part of a back book purchase.

While firms are not required to go beyond their contractual arrangements with consumers, they are expected to consider barriers that may exist to providing a consumer-centric service that delivers good outcomes.

Other considerations


Insurers already benefit from independent With Profits Committees to inform decisions making and advise the firm on the interests of the policyholders. Helpfully, these committees already consider many of the themes of Consumer Duty as part of their duties. However, we would expect a formalisation and expansion of their current duties, and that terms of reference of With-Profits Committees may need to be strengthened to reflect its role and responsibilities in relation to Consumer Duty.

How can KPMG in the UK help

KPMG in the UK has deep experience and expertise in With-Profits, covering Independent Expert work, advisory and audits to major With-Profits funds. In addition to this, our Risk and Regulatory team have provided advisory, implementation and assurance support to banking, asset management, general insurance and, critically, life insurance companies, over the first phase of Consumer Duty.

We are able to deploy cross functional teams with product, risk and regulatory, actuarial experience and transformation to help you implement Consumer Duty programmes.

To read more Consumer Duty insights from KPMG in the other articles, visit our Consumer Duty Hub.

Contact us