The length and complexity of some insurance distribution chains means customers pay too much for home and motor products, according to the UK’s Financial Conduct Authority (FCA).

It also creates the risk of customers buying inappropriate cover or receiving poor service.

A recently introduced insurance distribution directive requires that all companies in the distribution chain act in customers’ best interests. But many lack sufficient focus on customer outcomes and need to address this urgently, the FCA says.

It has warned the industry it will not hesitate to act against companies and senior managers when breaches occur.

“Through our recent work we have continued to see poor manufacturing, sales and distribution approaches leading to sales of low-value and inappropriate products, unfair treatment of claims and service issues,” FCA Director of Supervision – Retail and Authorisations Jonathan Davidson said.

“The widespread extent of these issues demonstrates a culture that pays insufficient regard to customer outcomes in some parts of the general insurance sector.”

The FCA has uncovered many cases in which insurers, manufacturers and distributors have not considered the impact of their actions on product value and customer outcomes.

The average level of commission taken by some distributors of guaranteed asset protection insurance is more than 60%, the regulator says.

Manufacturers are ceding control over all elements of product sales – including the end price – to distributors, and not assessing if they are suitable to handle the product.

The FCA has published guidance for companies to improve their culture and governance issues and focus on customer outcomes.