Following a review into services offered in the sector the regulator said control frameworks were not strong enough at some firms.
The research said ‘inherent conflicts within insurance intermediaries are not being properly managed’ and that few firms understood how an insurance intermediary could be conflicted when providing advice.
The FCA said insurance brokers often acted on behalf of the insurer as well as the client and this posed potential conflicts of interest. The complex nature of business insurance meant there was a greater dependence on brokers for product advice.
Clive Adamson, director of supervision at the FCA, said: “Small businesses are experts in their particular field but are often not experienced in buying insurance.
“That is why they need to be able to trust their insurance intermediary to act in their best interests. If there are conflicts of interest that are not identified or properly managed, that trust is put at risk.”
FCA research found a large majority (86%) of small business policyholders expected their adviser to search for more than one quote, something which was not consistently the case at some firms.
The regulator said this could lead to small businesses overpaying for their cover or purchasing products they do not need. Disclosure to customers was often very generic and unlikely to enhance their understanding, it also warned.
While the review focused on larger firms the FCA said all intermediaries should ensure conflicts are appropriately managed.