Industry keen to work with FCA following dual pricing review

Insurance trade bodies have welcomed the Financial Conduct Authority’s (FCA) market study into general insurance pricing, which will consider “all possible remedies” to make the market work for consumers.

Today (31 October), the regulator launched an investigation into how insurers charge home and motor customers.

The regulator identified that current practises in the industry have the potential to cause harm to customers, particularly the vulnerable.

The review comes hot on the heels of criticism by Citizens Advice last month, which slammed the practice of overcharging loyal customers and warned again that consumers are being ripped off.

Principles
David Sparkes, head of compliance and training at the British Insurance Brokers’ Association (Biba), told Insurance Age that dual pricing was an issue the trade body had been aware of for some time and is looking into.

“[Biba] along with the [Association of British Insurers] (ABI) issued Guiding Principles and Action Points on pricing looking at ways that ensure firms do not have excessive pricing differences between new business and their renewal,” Sparkes said.

“So we very much welcome the study and are happy to work with the FCA while they carry it out.”

The principles and action points were issued this summer and the regulator today referenced the guidance, calling on the industry to “continue the work underway”.

Competitive
The ABI’s director of regulation Hugh Savill agreed with the FCA that the current state of the market did not benefit everyone.

“While many customers benefit from competitive motor and home insurance markets with lower premiums, we agree that the market is not working as well as it should for some long-standing customers,” Savill commented.

“Insurers were the first sector in the economy to launch an industry-wide initiative to tackle excessive price differences between new and existing customers earlier this year, and the FCA has welcomed this.

“This is an important issue and insurers will work with the FCA to address issues raised in the report to ensure that the market works as well as possible for all consumers”.

Action
Others in the industry have also reacted positively to the FCA’s general insurance market study.

Steve Southall, head of insurance regulation at EY, noted that the FCA review was a “clear call to action for the industry”.

He said: “It highlights a number of regulatory concerns which firms need to consider and address – notably whether their pricing practices result in their customers being treated fairly.

“Of key concern for the industry is the FCA’s assertion that they could consider taking further action where appropriate even if firms address the types of poor practice identified in the ‘Dear CEO’ letter and their thematic report.

“Firms will need to undertake a comprehensive review of their pricing frameworks from a customer perspective and, critically, be able to prove that they have treated customer fairly.”

Simon Morris, a financial services partner with law firm CMS, noted: “The FCA, now a pricing as well as a conduct regulator, has already flexed its muscles on the cost and benefits of used car warranty insurance, credit card repayments and cash savings. It’s now concerned some policyholders are overcharged on house and motor insurance.
  
“This is significant for three reasons: First, it goes a great deal further, stating that all insurers should think about the fairness of their pricing; next, while focusing on vulnerable policyholders, such as the poor and old, it is likely that the FCA’s remedies will be market-wide; last, and most important, the FCA is favouring imposing requirements direct on insurers, such as forbidding differential pricing.”
 
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