Opinion: The FCA's Christopher Woolard on pricing

Christopher Woolard

Paying the price: Customers shouldn’t lose out for being loyal, says Christopher Woolard

Pricing practices in the insurance industry have been the subject of a huge amount of commentary in recent years. We recognise it’s a complex issue. Sometimes there will be difficult trade-offs from pricing practices, which can create winners and losers.

However, we find that customers who have been with the same home insurance firm for five years pay on average 70% more than new customers. This is even though the costs and risks of providing insurance to both new and longstanding customers may be the same.

Competition can deliver better deals to those people who do shop around, and switch or negotiate a good deal with their existing insurer. When competition is working well, customers should be able to buy the products and services they need because they are sold in a way that is fair and not misleading.

But we all know that not everyone is this active when it comes to shopping around for insurance. It is important to get the balance right so that existing customers do not miss out on the benefits of competition and innovation, including when they purchase or renew their general insurance products. This is not just about offering good deals to the savvy shopper who pushes for better deals. In particular, those who are vulnerable might not find it as easy to shop around.

That’s why we recently launched a market study looking into home and motor insurance pricing practices. We want to make sure that general insurance markets deliver competitive and fair prices for consumers.

We recognise that work is already underway by the insurance industry to try and address concerns about pricing practices. In May, the Association of British Insurers and the British Insurance Brokers’ Association published guiding principles and action points on pricing and this work should continue. But our market study will allow us to take an in-depth look at how the market is working, and if needed, how to improve it.

Responsible and accountable
Our aim is clear – to serve the public interest by improving the way financial markets work and how firms conduct their business. However, it isn’t just for us to pursue these objectives. Critically, and primarily, they have to be internalised by firms and their staff. The senior managers and certification regime is being extended to insurers on 10 December and to all regulated firms at the end of next year. At the heart of the regime is to ensure that individuals are responsible and accountable for their conduct.

When competition is working well, customers should be able to buy the products and services they need because they are sold in a way that is fair and not misleading

Now we’ve called out this problem, we will scrutinise what’s happening and consider potential remedies. We want you to play a role in this work. You should check out what we’re doing on our website – we will be asking for more feedback in the future.

Our market study is part of a wider programme of work looking at pricing practices. Following our supervisory work, we are engaging with general insurance firms about governance, control and oversight of pricing practices and have issued a letter to CEOs setting out our expectations.

We are also considering the fairness of pricing more generally across financial services markets. We want to hear views from stakeholders to inform the judgment of when pricing is unfair in financial services markets. These views will be important for informing our market study. n

Christopher Woolard is executive director of strategy and competition at the Financial Conduct Authority.

ia debates

ia debates

It can’t be a surprise to anybody that the regulator is focusing on a wide-ranging set of projects looking at fairness and pricing in the insurance sector. It’s a shame this work needs to happen at all. Insurance is, after all a promise, and if customers feel they are overpaying for a promise they didn’t want to buy in the first place then that has an negative impact on the reputation of the sector.

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