PS21_5 General Insurance Pricing Practices Market Study

Following a series of market studies and guidance papers, that can all be accessed here; the FCA issued a policy statement to implement rules to ensure consumers receive fair value in home and motor insurance markets.

While we will have all seen the headline message that “renewing home and motor insurance consumers are quoted prices that are no more than they would be quoted as a new customer through the same channel” the paper does include additional made rules and guidance.

Please note that some of the following relates to all insurance products and not just home and car insurance and that:

“These rules supersede the General insurance distribution chain: Finalised guidance for insurance product manufacturers and distributors (FG19/05), which will be withdrawn when they come into effect” 

“The rules we are introducing come into force on: 

1 October 2021 for the systems and controls, product governance, premium finance provisions and related glossary changes. 

1 January 2022 for the pricing and auto-renewal remedies, reporting requirements, and related glossary and administrative changes. Firms have until 17 January 2022 to implement the pricing and auto renewal disclosure remedies fully, but after 1 January 2022, they must pay redress or make repayments to people if the delay to implementing negatively impacts them.”

Below is a brief summary of the outcomes that are likely be relevant to ATEB customers from the policy statement.

There will be a ban on “price walking” i.e. increasing the cost for loyal customers who remain with a provider to subsidise new customers. This includes incentives purely aimed at new customers.

The cost (APR) to renewing customers must be no higher than that for new customers.

Mid-term adjustments should be calculated based on the new information required to assess the risk.

The new rules only apply to consumers and not commercial customers.

The rules include anti-avoidance measures for firms that may charge a fee i.e. the fee must be included in the total cost to the consumer.

Senior Managers will have to attest via RegData that the firm complies with the rules.

If customers negotiate discounts for new business these should be reflected in the cost for renewing customers.

PROD 4.2.14 PR states that firms must obtain all necessary and relevant information in relation to the remuneration associated with the distribution arrangements so it can assess the ongoing value of the product. We have amended this rule in light of the feedback received to make clearer the minimum necessary information manufacturers will need to obtain, including:

  • The type and amount of remuneration of each person in the distribution arrangement, where this is part of the premium or otherwise paid directly by the customer, for the core insurance product and in relation to any additional product (unless this is another non‑investment insurance product not manufactured by the firm requesting the data). This will involve manufacturers obtaining information from the distributors on commissions and, if applicable, also fees paid by customers in respect of products they manufacture. However, it will not require insurers to obtain details of any separate commercial agreements between distributors and other firms (such as PCWs [price comparison websites]) which are paid by the distributor rather than being included separately in the premium or a breakdown of the distributor’s costs or profit margins.
  • An explanation of the services provided by each person in the distribution arrangement. This is to enable the manufacturer to identify the person’s role in the distribution channel.
  • Confirmation from any firm in the distribution arrangement that any remuneration is consistent with their regulatory obligations including SYSC 19F.2

It is also now a requirement, where premium finance is offered, that the firm does more than simply ask the customer to choose between paying monthly and annually the client should “actively elect” and decide what questions to ask to evidence this active election.

Firms should not incentivise premium finance sales over those for annual premium.

Consumers must be provided with a range of easy and accessible methods for opting out of auto-renewals.

Auto-renewal rules will not apply to private health, medical and pet insurance.

Insurers and price setting intermediaries will have reporting responsibilities under the new rules.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

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About the Author

Mike is a Chartered Financial Planner and a Fellow. He has been an ATEB consultant for over 10 years but has worked in financial services for a great deal longer. He has a wide breadth of experience covering banking and lending, home finance, pensions, investments, consumer credit and general insurance.

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