The FCA has published the awaited insurance product value measures data for the period July to December 2021. In its General Insurance (GI) add-ons Market Study (MS14/1), published a little over eight years ago, the FCA identified poor product value as an area of harm in general insurance. This was caused by ineffective competition between providers of retail insurance products, and a lack of common measures of value. To help address this the FCA, in September 2020 (six years later), introduced new rules to report and publish data on value measures, as set out in its Policy Statement (PS20/9).
This is the first time the FCA has collected and published this full data set (albeit that it covers a 6-month reporting period – July to December 2021) outside of the original pilot firms and products.
The data will provide firms with common indicators of value across a range of GI products. By publishing this information, the FCA aims to create incentives for firms to compete on broader elements of product value than price alone, and to improve the value of the products and services they offer consumers. For insurance distributors, this information may well be a useful source of product value information to include in their reviews of product manufacturers’ fair value assessments.
The FCA has focussed, as an example, on claims costs as a proportion of premium. At an aggregated product level (where a minimum of 5 firms reported data):
- Claims costs as a proportion of premium range from 5.21% for GAP insurance (add on) to 65.95% for motorcycle (all).
- For some products, add-ons have on average lower claim costs as a proportion of premiums, compared to the corresponding standalone product.
- The FCA notes that products with the lowest %age of premiums paid out in claims included GAP insurance (add-on and standalone), travel insurance (various), Excess Protection insurance (add-on) and Personal Accident insurance (add-on).
The FCA is concerned about how the current picture presented in the data appears to compare with firms stating that virtually all products are providing fair value. It should be noted, though, that there is no apparent FCA consideration of distribution costs in these examples.
The FCA will be closely analysing the next data set due in February 2023, as well as testing the robustness of firms’ product oversight and governance arrangements, including fair value assessments.
In addition to its observations, the FCA has referenced the link to the Consumer Duty as value metrics could also be potential indicators of wider issues under the Duty, helping to show if consumers are getting good outcomes.
If you are responsible for value measures reporting, the requirements are set out in SUP 16.27.7R and SUP 16.27.8R.