FCA has published its final report on its market study intro general insurance pricing practices and, alongside it, a consultation on changes to its Handbook, and rules on data publication. The key damning conclusions from the report are that firms use “complex and opaque” pricing practices which enable them to raise prices for renewing customers, and target these rises on consumers who are less likely to switch while using practices that make it harder for people who are more inclined to shop around to leave – for example, making it hard to stop auto-renewals. The study found that 6m policyholders were paying high or very high margins and that some of this could be attributed to harmful pricing practices. Most customers are unaware of these “price walking” tactics which result in, for example, an average motor insurance customer paying £285 for motor insurance whereas a customer with a provider for 5 years pays £370. FCA says consumers would have saved £1.2bn in 2018 if they had paid the average prices for their risk.
FCA is very concerned at the results of its study and the changes it proposes are significant. The proposals are specifically aimed at the motor and home insurance markets, but cover the general insurance market as a whole. Key among them are :
- where a customer renews their home or motor insurance, they should pay no more than if they were new to their provider through the same sales channel. The changes would, of course, not prevent firms from setting new prices but it would stop them from gradually increasing the renewal price otherwise than as a reflection of the customer’s risk;
- extending the rules in PROD to provide product governance requirements to make firms consider how they offer fair value to customers over the longer term. The rules would apply to all general insurance and pure protection products regardless of when they were manufactured, and would apply to core products and additional products, including premium finance distributed alongside insurance products;
- data reporting requirements; and
- making it easier to stop automatic renewal.
Consultation closes on 25 January 2021.
Finally, the new rules, effective from 1 January 2021 (with transitional provisions), will amend SUP and PROD to require firms to report general insurance value measures data covering claims frequencies, claims acceptance rates, average claim pay-outs and claims complaints as a percentage of claims and will require firms to ensure products offer a fair value to customers in the target market. FCA received many comments on its proposals, and most firms thought its proposals would result in significant costs without corresponding benefits. FCA has gone ahead with its proposals but made changes both to the scope of products covered and to certain reporting requirements in specific circumstances.