Last week, the Financial Conduct Authority launched a new market study. The study will investigate how general insurance (GI) firms charge their customers for home and motor insurance.
The study makes good on a promise the FCA made in its 2018-19 Business Plan, when it said it would conclude a piece of supervisory work on insurance pricing practices.
The results of this work were published on 31 October, and pave the way for a package of measures the regulator believes is necessary following its initial investigations. The market study is just one of these measures, which will see the regulator:
- addressing conduct by firms
- carrying out a market study on general insurance pricing practices
- publishing a wider discussion paper on fairness of pricing in financial services
What is general insurance?
Launching the new measures, the FCA claims that:
‘GI plays a key part in the UK economy, generating over £78 billion in premiums for UK insurers. The FCA’s Financial Lives Survey shows that most UK adults (82 per cent) have one or more GI products, with home and motor insurance being the most commonly held GI products in the UK’.
Why is the regulator launching this study and the other measures?
The FCA stated that it has been ‘concerned that general insurance pricing practices have the potential to cause harm to consumers, particularly those who are vulnerable’.
The study is intended to give the regulator ‘a deeper understanding of the scale of any harm to consumers from general insurance pricing practices, who it affects and, if required, what actions are required to improve the market’.
What does this new work cover?
1. A market study on general insurance pricing practices
The study is designed to increase the regulator’s understanding of:
- Consumer outcomes from pricing practices and what drives this
- The fairness of pricing practices
- The impact of pricing practices on competition
2. Discussion paper on fairness of pricing in financial services
Alongside the market study into insurance practices, the regulator has launched a discussion paper on fair pricing in financial services markets.
The paper sets out the Authority’s approach to considering fairness of pricing in general, and asks for views from stakeholders on what is perceived as unfair pricing.
3. The regulator is reviewing its previous actions on general insurance pricing
This was something announced in the FCA’s 2018-19 Business Plan, where it revealed plans to examine pricing practices among general insurance firms.
Previously, the Authority had criticised insurers for their inadequate renewals communications and introduced new rules to increase transparency and engagement at renewal. Now, it is ‘evaluating the impact of these rules [which] will inform our consideration of potential remedies in the market study’.
Pricing has long been in the FCA’s sights. We reported in September that the regulator is following up a super-complaint made by the CMA on pricing policies for loyal customers.
4. Addressing firms’ conduct
The regulator says that it expects ‘firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing’ and that firm ‘communications with their customers, including in relation to initial pricing and pricing at renewal, should be clear, fair and not misleading’.
In addition, firm should ‘take reasonable care to organise and control their affairs responsibly and effectively so that the governance, control and oversight of their pricing practices are appropriate’.
Against concerns that firms are not always meeting these expectations, the FCA is going to undertake further work in this area. This includes looking at renewal communications and engaging with firms on pricing practices and exploring non-compliance with rules on transparency.
What are the next steps?
The FCA is seeking feedback on the issues discussed in the market study – particularly the specific questions in Section 4 – by 3 December. You can email any thoughts on this to GIPricingPractices@fca.org.uk.
The regulator will then publish an interim market study report in summer 2019, with a final report and consultation on any proposed remedies planned by the end of 2019.
It wants input to the discussion paper on fair pricing by 31 January 2019. You can respond to this by completing the online response form, emailing email@example.com or writing to Chris Gee, Strategy & Competition Division, Financial Conduct Authority, 12 Endeavour Square, London E20 1JN.
Are you treating customers fairly?
Ensuring all customers receive fair treatment is a key theme of this piece of work, and an ongoing focus of the FCA.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.