Later this month we will finally see the FCA’s delayed market study on general insurance pricing practices (MS18/1).
We’ll be publishing detailed commentary on the FCA’s final report following its publication on 22 September. In the meantime it may be worth recalling some of the remedies mooted in its interim report in October last year for what the FCA sees as unfair pricing practices.
Based on its belief that ‘competition is not working well in the home and motor insurance markets, and that pricing practices are not delivering good outcomes for all consumers’, the regulator proposed a range of potential interventions. These included:
- Restrictions on pricing practices perceived as taking advantage of consumers who do not switch insurer or negotiate at renewal – potentially including restrictions on price increases relative to a benchmark such as the new business price for a policy, a regulatory requirement to ‘justify’ premium increases, and a ban on ‘price walking’ as a strategy for general insurance
- Measures to help consumers find and switch to better deals – including automatically switching those who have renewed several times to the same price and level of cover as those offered to equivalent new customers, or a requirement to ‘engage with’ customers who have renewed several times and seen premium increases
- An extension of product governance rules that require firms to consider ‘whether the costs and charges of the insurance product are compatible with the needs, objectives and characteristics of the target market’ to cover all insurance products, or a new responsibility for a senior manager to ‘take responsibility for the value of products to the target market’
- Monitoring of pricing practices – potentially including a requirement for firms to provide the FCA with data on average premiums paid in home and motor markets across different groups of consumers, to help the regulator to identify where actions might be required in relation to particular firms
- Measures to tackle practices that could discourage consumers from switching provider, including investigating the applicability of the CMA’s principles for healthy competition and acceptable behaviour by firms – potentially leading to remedies such as:
- A ban or restriction on auto-renewal, including where there has been a change in the price
- Making auto-renewal opt-in only
- Making it easy to decline auto-renewing policies at the time of purchase and at renewal
- Ensuring that firms make it as easy for customers to exit a contract as it was for them to sign up
- Additional measures including requiring firms to be more transparent about how they set prices for general insurance products, requiring firms to make clear to customers that their premiums have risen because they have not switched for a number of years, and requiring firms to publish information for public scrutiny on how their prices and pricing practices differ between customers presenting equivalent risks.
Clearly, any of these measures could have a very significant impact on general insurance providers, so consider this space watched!