The FCA recently released its Policy Statement (PS) on GI pricing practices. The driver behind the shake-up of this market was research from 2018, which showed that six million policy holders paid higher prices but if they’d paid the average for their risk would have saved £1.2bn.
The most talked about change is the ban on “price walking”. From January 2022, firms will have to offer a home or motor insurance renewal price that is no greater than the equivalent new business price it would offer a new customer. This is a significant intervention by the regulator who has even included anti-avoidance measures to prevent gaming of the rules.
Consumers that switch regularly may see an increase in premium, whereas those that have been with the same insurer for many years are likely to see a reduction. Some may argue this isn’t fair, but a healthy and well-functioning insurance market has to be one that works for all consumers, not just the ones that have the capability or desire to shop around.
Mortgage intermediaries should also be aware of the FCA’s enhanced rules and guidance on product value. Unlike the pricing remedy, this section applies more widely to GI and pure protection products, including add-ons and premium finance.
From 1 October 2021 new obligations will apply to both insurers and distributors to ensure they have processes in place to deliver products that offer fair value to the customer. In this context, value means the relationship between the overall price to the customer and the quality of the product(s) and/or services provided. The FCA doesn’t go as far as defining fair value but does include a steer on what distributors should consider, as well as guidance on what may impact the delivery of fair value. The concept of fair value is included in the FCA’s recent consultation on a new Consumer Duty, signifying that this is an integral part of the regulatory landscape for the long-term.
New requirements on auto-renewal cancellation will make it easier for consumers to exercise the option to cancel auto-renewal of their policy and applies to all GI products, excluding private health, medical and pet insurance. It is reassuring that this has been implemented on an opt-out rather than opt-in basis to help reduce the risk of cover unintentionally lapsing and leaving a customer uninsured.
The reporting requirements mean that some firms must submit annual data to the FCA on home and motor business. The granularity of the data submission does depend on the firm and whether it is an insurer or a price/non-price setting intermediary. Naturally much of the responsibility does fall on insurers, however there will be instances where some mortgage intermediary firms will be captured. AMI plans to issue a member factsheet to provide more detail on this and the other requirements in due course.
These changes are a step in the right direction to improving trust in the insurance industry. It should also present GI opportunities for mortgage intermediaries, as the aggregator model is likely to be disrupted and market shares, profits and revenues will potentially be re-distributed.
Intermediaries by their very nature play an important role in helping consumers understand the value of products and by no means do these requirements discourage shopping around to find a suitable product. What we need to encourage is perhaps a shift from a consumer focus predominantly on price (and the lure of a stuffed toy or ‘free’ pizza voucher) to more of an appreciation of the particulars of a product, its benefits and ultimately how a policy will react in the event of a claim.
AMI, June 2021