How to comply with new FCA rules on insurance pricing

Oct 4th '19

Today (4 October) the Financial Conduct Authority (FCA) published the interim report of its market study into the pricing of home and motor insurance – but if you don’t want to wade through its 69 pages, we’ve summarised the key findings here:


What is the FCA’s market study on insurance pricing?

The regulator launched its Market Study in November 2018. It aimed to examine how general insurance firms charge their customers for home and motor insurance.


It forms part of an ongoing focus on fair treatment of customers, particularly existing and loyal ones. When it launched the study, the FCA voiced its concern ‘that general insurance pricing practices have the potential to cause harm to consumers, particularly those who are vulnerable’.


What did the study find?

The key findings from the study are that:


  • Competition is not working well for all consumers in the home and motor insurance markets
  • Pricing in these markets means that consumers who do not switch or negotiate with their provider pay higher prices for their insurance.
  • Around 6 million policyholders currently pay high prices and are not getting a good deal on their insurance. If these 6 million instead paid the average premium for their risk, they could save around £1.2 billion a year.
  • All types of customers are affected by this, including one in three potentially vulnerable people – people who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium.
  • Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch.
  • Longstanding customers pay more on average, but even some people who switch pay higher prices.
  • Most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price. This is not made clear to the customer.
  • Firms engage in a range of practices to raise barriers to switching.
  • Many consumers who switch or negotiate their premium can get a good deal.


What is the FCA doing to tackle the issues it found?

The regulator outlined a number of activities it’s undertaking to address the problems it found.


Launching the findings, the FCA referred to work it had already done to improve transparency in general insurance renewals. This was the result of its 2016 thematic review into the sector.


The FCA also intends to continue its work to ensure firms improve the way they oversee their pricing practices and respond to other recent changes.


Other remedies being considered include:


  • Measures to tackle high premiums for consumers. This could potentially mean banning or restricting practices like raising prices for consumers who renew each year, or requiring firms to automatically move consumers to cheaper equivalent deals.
  • Removing practices that could discourage switching – including restricting the way that firms use automatic renewal.
  • Improving firms’ clarity and transparency in their dealings with consumers – including improvements to the way firms communicate with their customers. This might include requiring firms to make it clear to consumers that their price has increased as a result of them not switching provider for several years. It might also mean requiring firms not to use statements that discourage switching.
  • Longer-term, harnessing innovation to enable general insurance markets to benefit positively from technological developments.


The FCA plans to publish a final report and consultation on remedies in Q1 2020.


What can firms do in the meantime to address the shortcomings the FCA found?


  • Review their own customer communications. As long ago as 2016, the regulator identified issues with insurer renewal communications and introduced new guidelines around transparency and clarity.
  • Identify any ways that small print could be improved in line with best practice guidelines, in particular ensuring that any disclosures and disclaimers are correct and displayed with suitable prominence.
  • Make sure that any messages around auto-renewals or, conversely, about shopping around for better premiums, are included and clear.
  • Ensure that all communications follow the required Compliance team review and approvals process – something the FCA has focused on recently.


For more advice on producing customer-focused communications, you can download a copy of our Treating Customers Fairly FAQs. They explore the FCA’s TCF rules and how you can comply with them, and they are free to download from our resource library.


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