They have been saying that price differentiation is unacceptable and unfair to customers for years but have been consistently ignored – until now. The new pricing and fair value requirements set out in its General Insurance Pricing Practices publication, PS 21/11, are a big, unavoidable wake-up call for the sector.
Let’s quickly recap. The FCA first published its final rules in May – but has fine-tuned them following feedback so there can be no misunderstanding of how the rules work or about the expected benefits to policyholders.
The rules are designed to ensure the insurance market offers customers value for money products, acts fairly and transparently when it comes to auto-renewals and stops the practice of ‘price walking’, where firms charge longstanding, loyal customers inflated renewal premiums to subsidise the much lower prices offered to attract new customers.
Continuing poor practices
Regrettably, there are some regulated firms in the market today who, despite very clear messages from the regulator over many years, continue to prioritise making money above acting in their customers’ best interests.
The FCA has understandably finally reached the end of its tether on this. Those firms reluctant to listen and course-correct to do the right thing by their customers, now have no option. And that’s going to hit where it hurts most: the bottom line.
Those firms, by contrast, who have always played fair, haven’t price walked but put their customers’ interests first now finally stand to reap the benefits of having done so.
The FCA was always reluctant to intervene on price but they have now waded in and imposed a total ban on price walking for home and motor insurance.
The regulator has also introduced rules to ensure ‘value for money’ for customers across all insurance products.
They have made it clear to a sector that has always competed on price that the mindset has to change – product, service and overall value for money is what firms should be competing on, not price.
To back this up, the FCA has considerably strengthened its approach to policing the new rules. Starting from next March, a senior manager must submit to the FCA in a prescribed format an attestation, confirming they are satisfied that the firm’s pricing and sales practices are consistent with the new rules.
If the FCA finds that price walking is still happening, they will hold both the firm and that senior manager to account. There is going to be no hiding place on this.
Significant shift in the regulator’s expectations
This is a new, steely FCA, determined to stop the poor practices we still see in this sector notwithstanding their many previous interventions.
But the insurance sector should not think they have been singled out for special attention. The FCA’s new proposed consumer duty is a similarly significant shift in what the regulator expects across all markets it regulates.
They have made it clear that this is going to require a significant shift in firms’ culture and behaviour. They have also made it clear in the business plan that the FCA under its new CEO will act decisively; they will be more assertive; and they will test the limits of their own powers. This will mean more enforcement action. We have all been warned.