The Financial Conduct Authority (FCA) has today unveiled plans to ensure insurance customers pay no more when renewing a policy than they would if they were buying for the first time.
UK firms would be free to set new business prices under the proposals, but would be prevented from gradually increasing these to consumers over time, known as 'price walking'.
Renewal prices would be no higher than the equivalent new business price unless there are changes to the existing policyholder's risk profile, potentially saving customers an estimated £3.7bn over 10 years.
The FCA explained how insurers use complex and opaque pricing practices that allow them to raise prices for consumers that renew year-on-year, leaving many customers penalised for their loyalty.
“We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers,” said Christopher Woolard, the FCA's interim chief executive. “The package would also ensure that firms focus on providing fair value to all their customers.”
The FCA warned that firms target price increases on consumers who are less likely to switch, and use practices that make it harder for people to leave. It found that six million policyholders were paying high or very high margins in 2018.
Today's proposals also include:
- Product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term
- Requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed
- Making it simpler to stop automatic renewal across all general insurance products.
Although the main focus is on home and motor insurance, the product governance rules will also apply to wider general insurance and pure protection products.
“As with any regulatory change, there will be winners and losers within the industry, and the winners will be those with the ability to flexibly adapt their pricing strategy,” commented Stephen Jones, UK P&C consulting lead at Willis Towers Watson.
“Critical to any effective adaption strategy will be strong portfolio management and governance, the need for greater operational efficiency, the ability to report clearly on the adherence to the remedy and flexible deployment.”
The FCA's consultation will run till 25 January 2021, with new rules expected next year.
Author: Chris Seekings
Image credit: iStock