(All guest blogs represent the views of the individual and do not necessarily represent the views of the ABI or its membership.)
The recent launch by the FCA of a market study into general insurance pricing practices shows the regulator continues to emphasise the core value of TCF, particularly when it comes to charges faced by customers. Focusing on two of the most commonly held general insurance products (home and motor insurance), the market study is also set to expand the regulator’s nascent work on how insurers use data and information on personal characteristics to price policies across different groups of customers, and particularly those classed as vulnerable. Alongside the market study announcement, the FCA has also published a discussion paper setting out its approach to considering fairness of pricing in general. Both publications are available on the FCA’s website and have received widespread media coverage, indicating the level of public interest in this topic.
The FCA’s announcement follows concerns identified during its supervisory work, and previous publications such as its July 2018 research note on price discrimination in financial services. The FCA has identified four key issues related to pricing practices on which the market study will focus: (1) consumer outcomes; (2) fairness of outcomes; (3) impact on competition; and (4) remedies to address any harm the regulator identifies. The information gathering exercise is due to conclude by the end of January 2019, with an interim report in the summer to be followed by a consultation on any proposed remedies by the end of 2019.
The market study poses several pertinent questions for insurers offering home and motor policies, such as:
- Do firms understand their customer data (including when sourced from third parties) and how it is used in pricing models for different groups of customers?
- Do firms have policies and procedures in place to identify vulnerable customers, and enact different treatment strategies (including in relation to pricing) depending on their individual circumstances?
- Are different pricing strategies in place for new versus existing customers? If so, how do firms rationalise these different approaches? What is the scale of these practices?
- Have firms considered and, where appropriate, acted on the May 2018 ABI/BIBA Guiding Principles and Action Points for General Insurance Pricing?
- For other lines of business, how might the findings from the market study’s focus on home and motor insurance influence wider regulatory approaches? The FCA has noted it will seek to identify lessons with wider relevance.
We have helped a number of firms with FCA market studies and experience tells us that firms should not underestimate the amount of work required in forming their responses, particularly when it comes to satisfying large and wide-ranging information requests. With the bulk of information gathering activity expected to fall over Christmas and New Year, firms should start planning now. Those plans should include considering whether they are likely to need specialist support from subject matter experts or project managers to assist in their response.