The Financial Conduct Authority (FCA) must consider how its new pricing rules for insurance may inadvertently leave consumers without coverage, the Institute and Faculty of Actuaries (IFoA) has said.
The FCA last week confirmed new rules for home and motor insurance that will ensure renewal quotes are not more expensive than they would be for new customers, thus removing the 'loyalty penalty'.
The new rules will also make it easier for consumers to cancel the automatic renewal of their policy, and require insurance firms to do more to consider how they offer fair value.
While welcoming these measures – which are estimated to save consumers £4.2bn over 10 years – the IFoA warned that they could also have unintended consequences.
“We support the principle of removing unreasonable barriers to consumers on exiting insurance auto-renewal, however, auto-renewal does give policyholders some assurance they will not accidentally find themselves uninsured,” said John Taylor, immediate past president at the IFoA.
“The FCA will need to carefully consider balancing the removal of barriers with the risk of consumers inadvertently being left without insurance.”
On the new pricing rules, he continued: “There is an expectation that the pricing remedies should see lower premiums through increased competition and a rebalancing of the market, but the impact may be limited in practice.
“Potentially the remedies could have the opposite effect, or lead to some firms leaving the market.”
It is hoped that the new rules – which come into effect on 1 January 2022 – will bring an end to 'price walking', which involves insurance companies hiking their prices every year.
The FCA said that this practice distorts the way the market works, with many firms offering unsustainably low-priced deals to some, and using sophisticated processes to target the best deals at customers who they think will not switch in the future, and will therefore pay more.
“It is vitally important that the home and motor insurance markets work well and deliver fair value to consumers,” Taylor continued. “Mitigating harm to those currently penalised by price walking should lead to fairer premiums for loyal customers.
“The new FCA rules should also result in less switching or ‘churn’, and lower frictional costs, which could benefit consumers.”
However, he added: “It is crucial that the FCA’s future assessment properly considers the impact of these changes on competitiveness for home and motor insurance.”
Image credit: iStock
Author: Chris Seekings