The policy statement follows the consultation published on 22nd September 2020, and its market consultation, which ended on 25th January 2021.
What businesses do the proposals cover?
- General insurers and intermediaries
- Life assurers and intermediaries selling pure protection business
- Trade bodies representing these firms
- Consumers and consumer organisations
What’s the goal of the new rules?
According to the FCA:
“Our rules ensure that renewing home and motor insurance consumers are quoted prices that are no more than they would be quoted as a new customer through the same channel. We are also making it simpler for customers to stop automatic renewals if they wish to do so. We are also introducing new product governance rules to ensure that firms deliver fair value on all their insurance products.”
The FCA’s new rules come into force on:
1. 1st October 2021 for the systems and controls, product governance, premium finance provisions and related glossary changes.
2. 1st January 2022 for the pricing and auto-renewal remedies, reporting requirements, and related glossary and administrative changes. Firms have until 17 January 2022 to implement the pricing and auto renewal disclosure remedies fully, but after 1 January 2022, they must pay redress or make repayments to people if the delay to implementing negatively impacts them.
What is the FCA proposing?
The policy statement clarifies many points raised by firms during the consultation. However, the full document is 217 pages long, and it would be difficult to summarise all the significant points here. It’s best to review the document yourself and consider how it applies to your business: https://www.fca.org.uk/publication/policy/ps21-5.pdf
The FCA summarises its intentions and motivations like this:
“Our findings showed that markets are failing to achieve fair value for those consumers who are paying a loyalty penalty. We explained in our 2020 business plan the three target outcomes we want to see, to ensure consumers get fair access, price and quality:
- consumers can choose from products that meet their needs, at a suitable quality and price
- digital innovation and competition support greater value for consumers
- vulnerable consumers are not exploited or targeted with poor value products and services and access to key products and services is fair.
Our remedies aim to ensure consumers receive fair value in the home and motor insurance markets, primarily by ensuring that customers can make choices, and receive products and services at a suitable quality in relation to the price, over the lifetime of the customer relationship.”
The FCA summarises its top 3 objectives like this:
- Ensuring relevant markets function well
“These measures are designed to improve the way general insurance markets function. At present, competition is not working effectively for all consumers, which is leading to poor outcomes for many customers.”
“Price walking distorts competition and increases costs for consumers and firms. Our remedies are designed to improve competition in these markets by preventing firms from price walking customers and ensuring they deliver fair value.”
- Consumer protection
“Some consumers have been harmed by paying very high prices over a long period, and by practices that have discouraged them from shopping around. Our remedies are designed to reduce harm for these consumers and secure an appropriate degree of protection for them.”
What does this mean for you?
It will take several weeks for the industry to digest all the information in this document. However, this 217-page policy statement mentions the term “fair value” 153 times. In light of the FCA’s focus on fair value, you may be interested in this handy summary of our recent webinar: Embedding Fair Value Within Insurance.
The webinar got a lot of interest industry-wide, and some great feedback. You can also download the survey we did about industry attitudes towards fair value and the FCA’s pricing proposals here.