All you need to know about the FCA’s General Insurance Pricing Practices Report
On 22 September, the FCA published their long-awaited review of pricing practices in the Home and Motor Insurance sectors. The final report suggests that some consumers are still not getting fair value for the insurance policies they purchase. Does this mean the FCA signalled the end of dual pricing?
Following what was called at the time ‘a super complaint’ by the Citizens Advice Bureau, the FCA began an investigation in October 2018 to understand whether pricing practices in Home and Motor Insurance provide effective and suitable competition.
The interim results of that study found six million people in the UK are being overcharged for their Home and Motor policies to the tune of £1.2 billion a year. Consequently, the regulator carried out further work, resulting in their final report published in September.
Market Study MS18/1.3 sets out the FCA’s final findings on how the home and motor insurance markets are working as well as a series of remedies aimed at addressing the harm identified.
What are the key findings?
- The FCA identified firms use complicated methods to identify consumers who are more likely to renew with them. Firms then increase prices to these customers at renewal each year, resulting in some consumers paying very high prices
- Firms use practices that prevent consumers from shopping around, including making it more difficult to cancel automatic renewal
- Firms do not always offer regular switchers their lowest prices.
What is the FCA recommending?
The FCA is proposing a package of measures to stop firms increasing prices in Home and Motor Insurance for loyal customers, as well as focusing on providing fair value to all their clients and increasing trust.
The measures include:
- Insurers would have to ensure that when customers renew their Home or Motor Insurance policy, they pay no more than a new customer
- Prevention from gradually increasing the renewal price to consumers over time, a practice known as ‘price walking’
- Firms will be required to offer a range of simple and easy options for consumers who want to cancel auto-renewal. This remedy would apply to all retail general insurance products, not just Home and Motor Insurance
- Proposal to extend the product governance rules (PROD) rules that require firms to have appropriate processes in place when manufacturing, distributing and managing products manufactured or significantly adapted after 1st October 2018 to all GI and pure protection products, regardless of when they were manufactured
- New reporting requirements requiring firms to submit reports for retail Home and Motor Insurance. This will also include where firms sell additional products, including premium finance, alongside this insurance.
What are the next steps?
To implement these new proposals, the FCA has released a consultation which closes on Monday 25th January 2021. With the regulator planning on publishing a policy statement, feedback on the consultation and final rules in Q2 2021. The new rules are then expected to come into effect four months after publication.
Should you wish to read the full report click here.
If you have any questions or concerns, please don’t hesitate to speak to your BDM.