The Financial Conduct Authority (FCA) has challenged Lloyd’s and the London Market over their efforts to improve performance as they face increased competition from international rivals.

London remains the leading global insurance hub but client perceptions that it is relatively expensive have been reinforced by the slow adoption of technology and complex distribution chains, the UK regulator says.

“Maintaining London’s competitiveness is not one of our objectives, but ensuring a well-functioning market is, and a well-functioning market is characterised by a competitive and sustainable business model,” the FCA says in an annual review of financial services.

The report notes Lloyd’s is developing two electronic risk placement platforms as part of its broader efforts to modernise the market and improve performance.

“There are efforts to improve expense ratios both in Lloyd’s and the wider London market, but questions remain about whether enough is being done to address the issue,” it says.

The FCA also highlights that poor culture remains a concern in the wholesale insurance sector and threatens to undermine its broader standing.

“Non-financial misconduct raises questions about the London Market’s ability to identify and challenge poor financial conduct, such as managing conflicts of interest,” it says.

“It also poses a threat to market integrity if it affects the image of and trust in the sector.”

It says whistleblowing can be part of the solution, and Lloyd’s has announced new measures to tackle culture issues with a “speak up campaign”, which includes a support phone line for staff in the marketplace.

In the retail arena, the regulator is finalising proposals to address pricing practices that penalise loyal customers, following the release of an interim report into the problem last year.

Other issues raised in the annual review include potential mis-use of consumer data and changing technologies that could see covers becoming unaffordable for some consumers.

“Increased use of data is leading to personalised risk modelling and pricing, which reduces risk-pooling across customer groups,” the report says. “This can have implications for harm that falls outside our regulatory remit.”