FCA boss’ CEO letter warns of failures, dual pricing and risk of discrimination

close up image of handwriting

Andrew Bailey sends pricing practices warning.

Andrew Bailey, chief executive officer of the Financial Conduct Authority (FCA) has written to insurance CEOs to highlight the risks of “significant harm and poor outcomes for consumers” found in its investigation into household insurance pricing practices.

He warned that during the review the regulator identified firms failing to have oversight, governance and control of pricing practices. This meant businesses could not assess or give evidence that they were treating customers fairly.

In addition the letter flagged “differential pricing” meaning some customers were paying “significantly higher prices” than others despite having similar risks.

And that there was a risk of discrimination against consumers. This could come about by using rating factors in pricing based – directly or indirectly – on data “relating to or derived from protected characteristics”. It could include data from a third party.

The correspondence set out that pricing by insurers and “revelant intermediaries” was a key business activity.

Bailey told the CEOs he was writing to make the FCA’s expectations clear.

“Your firm should act now to address any issues from the findings in our report which apply,” he stated.

In particular he emphasised and repeated that firms needed to be able to give evidence.

He instructed them that they need to be able to “demonstrate” how they have reached their conclusions when they check if they are treating customers fairly.

And that they must be clear who in the business is responsible for pricing decisions and by extension responsible for customer outcomes.

Market study
The document came as the regulator also published a market study on general insurance pricing practices and a wider discussion paper on fairness of pricing in financial services.

Bailey noted that while work is ongoing the regulator will not take its eye off the ball.

He pointed out the watchdog “reserved” its position on rule breaches around insurance pricing activities.

“The FCA could consider taking further action where appropriate even if firms address the poor practice identified in this letter and our thematic report,” Bailey wrote.

He also flagged changes under the Insurance Distribution Directive that came into force at the start of the month as well as pointing out requirements under the Senior Insurance Managers’ and Approved Persons Regimes.

Bailey concluded: “Please read this letter together with our thematic report, paying attention to the expectations set out in more detail within it.

“We expect you to show how you have considered the issues raised in the report and to be able to explain and evidence any remedial actions you have taken.

“We may discuss issues you have identified and the actions undertaken with your board members and senior executive management as part of our ongoing supervisory engagement.”

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