23rd September 2020

The Financial Conduct Authority (FCA) has published the long-awaited final report for its general insurance pricing practices market study which suggests that some consumers are still not getting fair value for their purchases. Market Study MS18/1.3 sets out the regulator’s final findings on how the home and motor insurance markets are working as well as a series of remedies aimed at addressing the harm identified through its further analysis of sector. It builds on the work of the interim report it published in October 2019.

Key findings in MS18/1.3 included:

  • Price walking by some firms meant premiums increased gradually to those customers who renewed with them year-on-year.  Many customers were not aware this was happening to them.
  • When setting a price, most firms took account of the likelihood that a customer will switch supplier at their next renewal or in the future.
  • Some firms also use practices that make it more difficult for consumers to make more informed decisions and raise barriers to switching.
  • The cost of attracting business is significant and ultimately customers bore this cost by paying higher prices.
  • Some consumers were unlikely to switch because they did not know that their renewal price may not be competitive. These consumers tended to be price walked each year.
  • Shopping around and switching merely to avoid price walking takes time and effort and can impose unnecessary costs on consumers and firms.
  • People who pay high premiums are less likely to understand insurance products or the impact that renewing with their existing provider has on what they pay.

BIBA members may access a full copy of Market Study MS18/1.3 by clicking here.

BIBA issued a statement supporting the FCA’s desired outcomes of enhanced competition, and long-term fair value for customers.  As BIBA stated in its response to the Market Study Interim Report MS18/1.2, it believes that although most brokers are not responsible for setting prices, they are very much part of the solution for customers.  Members may access our full statement by clicking here.

In order to support the findings of its market study the FCA opened a consultation on a series of measures designed to further boost competition and deliver fair value to all insurance customers.  The FCA expects the remedies, if properly implemented, will improve competition and save consumers £3.7 billion over ten years thanks to lower costs for supplying insurance, and ultimately lower the prices paid by consumers on average Handbook changes included in Consultation Paper CP20/19 (CP20/19) include:

  • Pricing remedy: Chapter 3 contains new rules that will change the way firms price home and motor insurance.  Essentially, what is being proposed is that when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider through the same sales channel.
  • Product governance:  Chapter 4 puts forward changes to the existing product governance rules in the PROD sourcebook to ensure firms have processes in place to deliver products that offer fair value to customers. This would see extension of the scope of existing product governance rules that require firms to have appropriate processes in place when manufacturing, distributing and managing products manufactured or significantly adapted after 1 October 2018 to all GI and pure protection products regardless of when they were manufactured.

Rules that require firms to ensure their products offer fair value to their customers will also be enhanced. The new requirements would apply to core products and additional products, including premium finance distributed alongside insurance products. Some disclosure requirements in relation to premium finance sold alongside insurance products will also be enhanced.

  • Auto-renewal: Chapter 5 makes it simpler to stop automatic renewal.  Firms will be required to offer a range of accessible and easy options for consumers who want to cancel auto-renewal on their contract.  This remedy would apply to all retail general insurance products, not just home and motor insurance.
  • Reporting requirements:  Chapter 6 proposes new reporting requirements to help the FCA’s ongoing supervision of the home and motor insurance markets. This data will require firms to submit regular reports for retail home (home only, contents-only and home and buildings) and motor insurance. Where firms sell additional products, including premium finance, alongside this insurance, the FCA also proposes to gather information about those products.

Data proposed for collection is as follows: total and average premium charged to customers, net of insurance premium tax; net and gross price for intermediated and affinity/partnership sales; the number of policies sold/renewed during the reporting period; the number of policies in force at the reporting date; expected claims cost; expected claims ratio.

Responsibility for reporting would fall on insurers and price-setting intermediaries. Intermediaries working with Gibraltarian or temporary permissions regime insurers will have to report in the same way as firms working with UK authorised insurers. Both insurers and intermediaries would be expected to report even where data may overlap.

The consultation period closes on Monday 25th January 2021.  BIBA will be submitting an official response to CP20/19 and members who would like their views to be taken into consideration as part of this process should send them to David Sparkes at [email protected] by Friday 15th January.

The FCA is planning to publish a policy statement with its response to the consultation feedback and final rules in Q2 2021.  The regulator is proposing that any new rules would come into effect four months after publication of the policy statement.

BIBA members’ compliance and regulation queries should be directed to: [email protected].


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