The Financial Conduct Authority (FCA) has today set out the issues it will focus on as part of a market study into how general insurance (GI) firms charge their customers for home and motor insurance.
As part of the FCA’s 2018/2019 Business Plan, it said it would conclude a piece of supervisory work on insurance pricing practices, the results of which it has published today. The FCA has decided that a package of measures is necessary following this initial work. These include:
- addressing conduct by firms
- a market study on general insurance pricing practices
- a wider discussion paper on fairness of pricing in financial services
GI plays a key part in the UK economy, generating over £78 billion in premiums for UK insurers. The FCA’s Financial Lives Survey shows that most UK adults (82 per cent) have one or more GI products, with home and motor insurance being the most commonly held GI products in the UK.
The FCA has been concerned that general insurance pricing practices have the potential to cause harm to consumers, particularly those who are vulnerable. The FCA’s goal is to ensure that retail general insurance markets deliver competitive and fair prices for consumers.
The market study will give the FCA a deeper understanding of the scale of any harm to consumers from general insurance pricing practices, who it affects and, if required, what actions are required to improve the market.
Andrew Bailey, the FCA’s Chief Executive, commented:
“Our initial work has identified a number of areas of potential consumer harm. We want to make sure that general insurance markets deliver competitive and fair prices for all consumers. This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.
“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”
The FCA’s market study will focus on the following key issues:
- the consumer outcomes from pricing practices
- the fairness of outcomes from pricing practices
- the impact of pricing practices on competition
- remedies to address any harm that the FCA finds
The FCA’s supervisory work on home insurance found other issues which could cause harm to customers, including firms failing to have appropriate or clear pricing strategies, governance and controls. The FCA expects firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing and has written to CEOs of firms about its expectations.
The FCA has also identified potential non-compliance by some firms with our rules on transparency at renewal. Where the FCA has concerns about conduct by firms, it will explore all options to address this using the full range of its powers.
Alongside launching the market study, the FCA has published a discussion paper on fair pricing in financial services markets. The discussion paper sets out the FCA’s approach to considering fairness of pricing in general. The FCA wants to hear views from stakeholders to inform the judgment of when pricing is unfair in financial services markets. These views will also inform the market study.
The FCA is seeking input on the issues discussed in the market study terms of reference and accompanying evidence by 3 December 2018. The FCA aims to publish an interim market study report in summer 2019 setting out preliminary conclusions including, where practicable and appropriate, a discussion of potential remedies. It aims to publish its final report and, where required, consultation on proposed remedies by the end of 2019.
The FCA is seeking input to the discussion paper on fair pricing and accompanying evidence by 31 January 2019.
Alongside the FCA’s programme of work on general insurance pricing, it is working closely with the Competition and Markets Authority as it investigates the Citizens Advice super-complaint on excessive prices for disengaged customers.
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- General insurance market study terms of reference.
- The market study will focus on pricing practices in home and motor insurance. These are two of the largest general insurance markets and these products are widely held across the UK population. Both use personalised pricing based on specific personal characteristics and history of consumers, and renewal pricing. Other general insurance products such as health, pet and travel insurance are not included in the scope of the market study as they have different characteristics to home and motor insurance. However, where possible, the FCA will identify lessons from this market study that are relevant to other markets that it regulates.
- Pricing practices in the retail general insurance sector: Household insurance.
- Dear CEO letter to firms.
- Discussion Paper on Fair Pricing in Financial Services.
- Infographic: 6 evidential questions to help assess concerns about fairness in price discrimination.
- The FCA is aware that the general insurance industry is taking steps to address concerns about pricing practices. For example, in May 2018, the Association of British Insurers and British Insurance Brokers’ Association published Guiding Principles and Action Points for General Insurance Pricing. The aim was to act on excessive differences between premiums charged to new customers and those renewing. The FCA expects the general insurance industry to continue the work underway while the FCA conducts its programme of work. The FCA will take into account any improvements made when considering potential remedies that may be required to make the market work well for consumers.