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Oversight in the distribution chain - a game of Chinese whispers?

Regulatory interest in the distribution chain is not new. However, from the Insurance Distribution Directive and the FCA’s Thematic Review on the general insurance distribution chain in the general insurance space, to the increased focus on outsourced activities in long-term savings, we have recently seen the FCA significantly raising the bar in its expectations for oversight of the distribution chain. 

Good customer outcomes are central to the manufacture, distribution, and sale of products and services in general insurance and long-term savings. But does the original intended outcome of the manufacturer always reach the customer at the very end of the distribution chain?

Chinese whispersIn the game ‘Chinese whispers’, the first player begins by thinking of a message and whispers it into the ear of the second person in the line. The second player repeats the message to third player, and so on. More often than not, when you reach the end of the line, the message has been altered slightly. This can be due to a variety of factors, such as misunderstanding the message, perceiving it slightly differently, or by changing it deliberately – all will change the message, unintended or not.

What if this happens in a financial services distribution chain? Does the original outcome envisioned by the manufacturer become slightly altered as it goes through various distributors or outsourcers, both online and in person, presenting a final product or outcome to the customer which may not have been its original intention? These changes could be unintended and due to a different perception of the outcome. How can this be mitigated and managed by all parties in the supply chain? How, and to what extent, can it be overseen by the manufacturer? What should happen when the message is changed and may subsequently risk causing harm to the end customer? What happens when this process becomes completely automated or done through machine learning?

In this session we will explore how a manufacturer of a product can best ensure that the intended design features of the product (be it the demands and needs of the customer, the target market, or the price, for example) are matched with the customer at point of purchase. These questions will only become more complex as technology evolves and distributers or outsourcers are located across the world or even in the digital space. Our breakout may not have all the answers for firms, but we are hoping to break down the process and identify where main tensions lie and how firms can best navigate the regulatory environment.

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Last updated 18/02/2020