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Seven things we learned from the ABI Competition Conference

The ABI hosted a conference about the Financial Conduct Authority's (FCA) new remit to promote competition on 24 October 2013.

Here are our seven key learning points from the event:ABI Competition Conference

  1. Chris Woolard, FCA Director of Policy, Risk and Research, described the competition remit as a ‘quiet revolution’ in UK financial services regulation. Changes will be introduced gradually but Parliament is planning to give the FCA further competition powers, so the end result will be a significantly altered regulatory environment.
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  3. The FCA is keen to use insights from behavioural economics to understand the impact of consumer biases and the ‘nudges’ that can be used to make a market more effective. However, while it is evident that behavioural economics will influence the FCA’s analysis of markets, it is not yet clear how it will be used in relation to available policy levers. In addition, there is a fine line between an appropriate amount of nudge and inappropriate market interventions with unintended consequences.
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  5. Consumers place a value on their time, so within the bounds of rationality, it is questionable to expect that they would spend much time looking to save a few pounds on their insurance. It might be that some consumers get greater value out of the most convenient/valued product than the cheapest one, while the lowest price is the priority for other consumer groups. 
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  7. Competition analysis and interventions should not be adopted on a ‘one-size-fits-all’ basis. The FCA should take full account of the large contrasts between the markets for different insurance products. For example, a pension meets quite different consumer needs to a motor insurance policy, and the issues confronting regulators within the two product markets are also very different. In this way, the regulator needs to avoid the ‘regulatory bias’ from using its own rules of thumb and will need to collect and analyse evidence about each market. 
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  9. The FCA is likely to look at profitability levels in some markets. However, according to one panellist at the event, estimating "fair profit" is a "slightly problematic question". Industry participants urged the FCA to exercise caution in a complex area of competition analysis.  For example, within a complex organisational structure cross-subsidisation may occur within firms’ business models, involving higher profits in some markets but lower profit levels or a loss in others. 
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  11. Regulators should be mindful of the strong link between public policy and some insurance products such as long term care and auto-enrolment. To this extent competition regulation should be more grounded within the wider public policy context. The FCA is already placing greater emphasis upon the value of consumers accessing financial services than did the FSA, which is a positive development. 
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  13. The ABI and individual insurers should engage proactively with the FCA to explain how each insurance market works. This should help reduce the risk of inappropriate policy interventions and we should also look for opportunities to help unplug problematic market dynamics.

Last updated 01/07/2016