The FCA has published its long awaited General Insurance Pricing Practices Policy Statement, all 200+ pages of it. It represents one of the biggest regulatory changes in years.
PS 21/5: General insurance pricing practices market study (fca.org.uk)
Generally, the FCA has implemented the policy as per the related Consultation Paper although there are a few concessions on reporting and timing as a result of over 100 responses to the CP.
This has received a lot of national media attention, Insurers must not penalise loyal customers, says FCA - BBC News , and rightly so. Most people would agree that “price-walking” (charging renewing customers more than equivalent new business customers) gives the insurance industry a bad name and the regulator has been compelled to act. The FCA is attempting to ban price-walking as it estimates that in 2018, 6 million loyal motor and home policy holders would have saved £1.2 billion had they paid the average price for their actual risk.
However, the devil is in the detail. The Policy Statement will have a big impact on virtually all brokers and not just those involved in motor and home insurance and the related add-ons, the main focus of the FCA’s work. The FCA has also introduced new rules on Product Governance which apply to all insurance contracts (other than large risks). These concentrate on whether the products offer fair value to the customer and is the firm acting in the customer’s best interest, both important themes in the recent proposed Consumer Duty from the FCA. Premium finance arrangements are also caught by this. There are also new rules making it easier for customers to cancel auto-renewing policies.
Therefore this will be keeping firms and their compliance consultants busy for at the least the rest of the year. The new product governance rules come into force 1 October 2021, the pricing and auto-renewal rules 1 January 2022, and the first reporting in September 2022 relating to the first half of 2022.
Firms should assess their business models, identify where they may be deemed to be price setting intermediaries for motor and home insurance (as more of the rules bite), whether they have been price-walking customers (even inadvertently) and whether they have any “closed” books (as there are rules to determine an equivalent new business price). They should work with their product providers (including premium finance firms) to demonstrate that their products offer fair value, and with their software houses to ensure that their systems enable the firm to be compliant with the new rules and can produce the required reports.
This is a major transformation and so even more points may come out as you work through implementing the changes in your business, RWA will continue to support you.
