The motor and household insurance sectors are today digesting the implications of what FCA interim CEO Christopher Woolard has himself described as ‘probably most radical shake-up of the general insurance industry in years’.
Far-reaching regulatory intervention has been on the cards ever since the FCA’s interim report on general insurance pricing practices concluded, in October last year, that customers’ loyalty was being systematically exploited.
Six million UK policyholders who renewed repeatedly with the same insurer, the interim report suggested, were paying a combined £1.2bn more for their motor and household insurance than the average price for the risks they presented.
Now, with the publication of the FCA’s final report (MS18/1.3: General insurance pricing practices market study), we have some clarity on the regulator’s proposed remedies. The headline news is that the FCA is proposing that retail motor and household insurers be required to offer their renewing customers a price no higher than that paid by new customers purchasing insurance through the same channel.
The regulator estimates that this will bring about a £3.7bn reduction in motor and household insurance premiums over the next 10 years. Firms will still be able to offer different prices to different customers, the FCA notes. They will still be able to ‘offer a range of brands and types of products to consumers at different prices and through different channels,’ ensuring consumers have a range of choices and can benefit from shopping around and switching.
Alongside its pricing remedy, the FCA intends to introduce enhanced product governance rules, to help ensure that firms deliver fair value for all consumers, and measures to prevent insurance providers making it hard for consumers to cancel automatically renewing policies and switch providers.
The FCA says it is committed to putting a supervisory approach in place consisting of three main elements:
- assessing whether there is appropriate pricing governance, ownership and accountability within relevant firms
- verifying firms’ compliance with the specific rules and guidance arising from the market study
- ensuring firms are actively considering the value they provide to their customers and consistently treating them fairly.
One of three annexes to the report includes a detailed simulation of the impact its proposed remedy could have.
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