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The FCA General Insurance Pricing Practices Market Study: what could this mean for customers?

The Financial Conduct Authority has published its market study on pricing practices in the General Insurance market for household and motor insurance.  

The aim of today’s report is easy to understand and we all share it. We know that the current home and motor insurance market model doesn’t work as well as it should for long-standing customers. The insurance industry recognised the need to address this imbalance eight years ago and we’ve done something about it. Insurers have been working to tackle it in our General Principles and Action Points for General Insurance Pricing (GPAPs). Many of the points made in the GPAPs review we published in July are reflected in today’s FCA report. 

How we achieve that aim is more detailed and technical, and so the ABI and its member firms will work with the FCA to help make sure the proposals can deliver the stated aims. 

Right now, here are some of the main points for customers to think about:

Will it mean cheaper car and home insurance? The main headline from the FCA is proposal that customers renewing their home or motor policy should be charged the same price as a new customer. In other words, someone staying loyal to their insurance provider should be quoted the same premium as if they were coming to that provider as a new customer.   

The FCA says it found in 2018 that six million policy holders would have saved £1.2billion if they had paid the average for their actual risk. But this doesn’t tell the story of those who pay less than cost price by switching each year. 

In fact, in its report the FCA recognises that this intervention “will probably lead to some consumers paying higher prices if they currently benefit from significant new business discounts as inducements to switch.” In short, many customers who have managed to get better deals by shopping around may find that they are paying higher prices next time round. As the FCA says, it “may lead to higher prices for regular switchers” 

A really important factor in making all this work will be fair and effective implementation.  That means having meaningful product governance by firms and having effective oversight and supervision by the FCA across the distribution chainacross all parts of the market that play a role in delivering insurance to customers 

Customers buy their insurance in lots of different ways: direct from an insurer by phone or internet, through a price comparison website, or via an insurance broker. Therefore, when the FCA issues its final rules and enforces them, it will need to cover all these parts of the market, including brokers and price comparison websites, rather than just focus on insurers. 

One of the big challenges for the FCA will be how it monitors the effectiveness of these recommendations. It says it plans to do this through analysing data, but it is fair to say that this may prove to be the biggest challenge. Getting these data points right will be very important so that firms can implement the requirements and their impact is measured accurately.   

The ABI has always said – and will continue to say – that it’s really important to buy the right level of cover for the insurance you needDon’t just buy on price alone or opt for the cheapest policy which may not provide all the cover that you require. The FCA’s proposals today could make that more important than ever.   

Last updated 22/09/2020