Price Walking: “Savings of Over £3.7bn over 10 Years”

Quite a headline grabbing figure by anyone’s imagination but that is the figure the FCA have calculated consumers will save following their anticipated ban on price-walking.

Although the FCA have had their eye on insurers’ price ploys for a number of years, the proposed ban has to be welcomed if the insurance industry is to universally adhere to something that’s been around since 2006 – and that’s to Treat Customers Fairly. Let’s not forget Principle 11 which says: “A firm must pay due regard to the interests of its customers and treat them fairly”.

When the FCA and the PRA replaced the FSA in 2012, both were charged with the responsibility of bringing transparency to a rather opaque industry and, restore customer confidence (was it ever there), yet it has taken this long to ban a practice that many have regarded as manifestly unfair.

The FCA go on to say that c.10million car and home customers are likely to save in the region of £120 per annum once the ban takes effect however that’s assuming that the insurers play ball by passing on the savings they are likely to make searching for new customers. The jury’s out in this regard.

Whilst some may routinely malign the FCA for who they are and how they make brokers’ lives difficult there can be no doubt that their work here will ensure that loyalty is rewarded and not penalised.

Of course, I accept that apathy of customers has a lot to do with the current position, but that’s not the point. Insurers have exploited this [often] misplaced loyalty to our collective disadvantage (because we are all insureds after all) and have now been forced to change their ways. Not out of choice or fairness.

The regulator cited the following as an example:

In one case, an 85-year-old in a three-bed terraced house in Leamington Spa was paying £700 a year for her home and contents insurance, when the rate for a new customer was just £144.

Dame Gillian Guy, the chief executive of Citizens Advice, said: “It’s nearly two years since we submitted a super-complaint on the loyalty penalty and we’re pleased to see the FCA is proposing strong action to crack down on this systematic scam.

“We’re especially happy to see it tackling price-walking – gradual year-on-year price increases – and making companies automatically switch their customers to better deals.”

It was interesting to witness the affect on certain insurers share prices as this announcement was made. Perhaps investors and fund management groups are having second thoughts about the insurance gravy train as a staple stock holding?

Now the reason for writing this article was not to highlight the plight of those poor insurers, whom, as product manufacturers, are to surrender to additional governance and reporting but, moreover to point out that the intermediary community will not be immune from the implications of this paper.

The FCA are also proposing to also make changes to product governance rules for you as distributors in particular, a requirement to:

  • Ensure you understand the value assessment that the manufacturer has undertaken.
  • Consider the impact of their [the manufacturer’s] distribution strategy and process to ensure that the product does not fail to offer fair value.
  • Provide information to the manufacturers to assist with their product reviews

This on top of your current obligations under ICOBS 5.2 to assess customers demands and needs (new business and at renewal).

The implication of this is that the FCA will come to expect you, as brokers, to review and where necessary, amend your distribution processes if this strategy identifies harm to customers and where necessary, take applicable remedial action.

The ultimate aim of the regulator? Well that’s to see the lowering of the price insureds pay.

For more information please contact your RWA Business Manager.

About the author

Bruce has worked in financial services for the whole of his professional life, including 11 years as a Compliance Director of a US owned Independent Financial Advisory and Wealth Management business. At RWA, Bruce leads the Audit and Conduct Risk department from our Manchester office. He is RWA's lead consultant to the Guernsey Financial Services Commission (GFSC).

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