"Golden age for brokers" as FCA cracks down on dual pricing

Golden Opportunity

Consumer Intelligence CEO Ian Hughes points to opportunities for brokers as the industry deals with the "crack cocaine" of insurance, dual pricing.

The Financial Conduct Authority’s (FCA) crackdown on dual pricing could lead to a new golden age for brokers, according to Ian Hughes, chief executive officer of Consumer Intelligence.

He detailed that the regulator wants to see change in the industry and that brokers, if they do their jobs right and prove their value to consumers, would address many of the issues that the FCA is looking at.

Hughes told Insurance Age: “If they take advantage of this it’s a really good opportunity. For me as a customer, the broker is my advocate in the world and it’s their job to build a relationship with me and find me the best policy.

“If I’m a vulnerable customer my broker can make sure I have the right product with the right features. But this involves going back to saying that it’s about a relationship that exists between the broker and the customer and building on from that.”

Wake-up call
The regulator published its general insurance pricing practices interim report last week, slamming the home and motor insurance markets for not working well for all consumers.

Hughes noted that the report should serve as a “huge wake-up call” for the sector and detailed that the industry will need to change.

However, some commentators have accused the FCA of taking too long to take action, as the dual pricing debate has been ongoing for years, and criticised the regulator for “not being hard enough”.

In response, Christopher Woolard, executive director of strategy and competition at the FCA, denied that the regulator was dragging its feet at a press conference on 4 October.

Hughes warned: “The industry should be reading these comments as well. The wind of change is blowing, not just for the insurance community but also for the FCA.”

Remedies
The watchdog’s proposed remedies include a potential ban on dual pricing, as well as a ban on auto-renewals. Insurance experts warned last week that some of these remedies could have “unintended consequences” for the industry.

“The technical requirements for changing some of the things that were talked about on Friday are almost impossible to bring in over a short period of time,” Hughes commented.

“It requires a complete change to the systems of the broker and the systems of the insurer and that’s before you even get into the economic impact of some of these measures.”

Crack cocaine
Hughes has previously described dual pricing as the “crack cocaine” of insurance and explained that this is one of the reasons why these practices still exist in the market. 

“The problem is that the entire industry is on crack cocaine so you’re not trying to get one company off of it, you’re trying to get the entire industry off.

“The real challenge here is that the second that a company says it will stop giving introductory discounts, it will not get any new business.”

He argued that all businesses in the sector would need to change at the same time in order for the industry to survive.

In Hughes’ view, banning introductory discounts would also make it “almost impossible” for new entrants to come into the market, which would limit choice for consumers.

He further expressed concern that getting rid of auto-renewals could lead to people ending up uninsured, because they do not see the economic advantage of shopping around.

Reputation
Meanwhile, brokers warned that the dual pricing debate should not focus solely on price and argued that the FCA should also look at value and the quality of service.

The regulator is now asking for feedback on the interim report, with its final report expected to be published in Q1 2020.

Hughes noted that the FCA’s findings are a reputational blow for brokers and insurers, and added that this is partially brought on by the industry “engaging in bad practice”.

He concluded: “But there is an opportunity here for the sector to win back the trust of consumers and if it can do that it can emerge as a better industry.”

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