We had some more comments in, so here’s a round-up;
Tony Tarquini, director of insurance, EMEA at Pegasystems comments:
“Banning the raising of prices for renewing policyholders could provide significant opportunity for new entrants in the market to build market share at a loss through comparison websites at the expense of established insurance companies. Whether that is a good or a bad thing in the long term for the consumer, we will have to wait and see.
Clearly the simplest way for an organisation to win new business is to reduce the cover down to the absolute statutory minimum. This may not be in the best interests of the consumer either as they may believe they are buying much more comprehensive cover than their policy actually provides, irrespective of what they need or even want. It is important that people understand the value and cover of the policy as much as the price. However, as the majority of personal lines motor and home policies are bought through comparison websites, which almost exclusively compare on price alone, it is very difficult for someone without detailed insurance knowledge to assess whether what they are buying is suitable for their needs.
“Insurers need to build long term, sustainable relationships with their policyholders to build brand loyalty which obviates the need for customers to change insurer every year. AI, analytics and decisioning technology is available today that helps insurers deliver the ‘next best conversation’ with their policyholders for every interaction. This helps insurers better understand their customers’ needs so they can be as helpful as possible, boosting satisfaction and therefore loyalty. If used intelligently and fairly, this should ensure consumers get the very best cover and customer experience possible, as well as price.”
WILLIS TOWERS WATSON
The final landscape for personal lines pricing following the FCA’s GI pricing practices review has become evident today with the publication of the consultation feedback and the final rules. Whilst many of the proposed rules are unchanged from those published in September 2020, some aspects of the rules have been clarified whilst others have been left to firms’ discretion
Graham Wright, UK P&C Pricing Product Claims and Underwriting Lead at Willis Towers Watson, comments: “The clarity of particular elements of the rules including around the use of incentives and the changes to the closed book rules will likely be welcomed by many in the market, whilst other elements will no doubt fuel further debate around the best actions for insurers and intermediaries to take now in order to meet the FCA’s requirements.”
Amongst those areas on which the industry had sought clarity during the consultation, one key area was the potential existence of an implicit margin remedy. This will merit careful consideration as the rules now clarify:
“When comparing a firm’s new business price with the renewal price for individual customers, we would not expect to see that the longer a customer’s tenure is, the greater the difference between: (1) in the case of an insurer, the risk price and the net-rated price or gross price; or (2) in the case of an intermediary, the net-rated price and the gross price.”
This naturally creates some challenges for insurers and intermediaries depending on their current approach to pricing.
Whilst there have been further rules added on governing the use of different data items between new business and renewals, there undoubtedly remains an element of uncertainty with firms left to make judgements around how to apply certain rating factors in their pricing. Perhaps most notably – appearing to represent a considerable change from the original draft – the new rules require that:
“A firm must include in its determination of a customer’s equivalent new business price any risk information acquired during the term of the customer’s current policy that has the effect of either increasing or decreasing the equivalent new business price.”
As well as outlining the final rules for the pricing remedy, reporting requirements, auto renewal changes and fair value, the FCA has clarified the implementation timeframes with the pricing remedy coming into force from 1 January 2022. Our judgement is that for many players in the market, this timeframe remains a tough ask and will no doubt cause some players significant challenges in the weeks ahead. Stephen Jones, UK P&C Consulting Lead at Willis Towers Watson, added: “Whilst in 18 months’ time the industry will have begun to stabilise in the new world, there is no doubt that the coming months will represent one of the most turbulent times for the personal lines industry”.
Commenting on the FCA’s final rules on the home and motor insurance market, Kevin Pratt, personal finance expert at Forbes Advisor UK, said:
“The way insurance companies set their prices has been a toxic issue for years. Charging new customers less than ones who are up for renewal is a crude marketing tactic designed to get more people onto the books. It shamefacedly exploits existing customers, who effectively subsidise the prices offered to new ones.
“What makes it worse is that it cynically plays on the loyalty that people often feel towards their insurance companies, and it weaponises the inertia that many others feel when it comes to finding an alternative at renewal time.
“It remains to be seen what the full impact of the FCA rule change will be. Will we simply see prices rise for new customers, as even the FCA suggests will happen? How long will it take for an overall net benefit for insurance buyers to wash through the system?
“The best tactic for anyone who’s buying insurance is still the same as it always was – shop around at renewal, don’t take your insurer’s renewal offer as any kind of indicator as to what a fair price might be, and certainly don’t feel any sense of loyalty to your current provider.”
Krystian Zajac, CEO and co-founder of challenger insurance brand Hiro, offers this comment;
“The end of unfair price walking practices is great news for consumers, and the FCA deserves credit for bearing its teeth. This is a victory in one battle, but the wider war on unfair insurance practices goes on. Insurers still systematically fail to price premiums in a personalised way and treat policyholders as individuals. For example, someone may have invested thousands of pounds in smart tech to make their home safer, but insurers are unable, or unwilling, to reflect this in their premium. Things like smart leak detectors, video doorbells, smart lighting, smoke alarms, cameras or even smart speakers are proven to prevent bad things from happening in the first instance. It’s about time insurers found a way to reward consumers for making their homes smarter and safer.”
Responding to the FCA’s final General Insurance Pricing Practices policy statement Consumer Intelligence PR & Communications Manager Catherine Carey said:
“This is a shot in the arm for innovation and presses a giant reset button on the relationship between price and value, it will change the relationship between brands and consumers.”
“We expect to see insurers changing their models and new firms entering the market for the first time as loss-making year one pricing phases out. If you look at these new rules, and specifically the introduction of fair value, it’s the most exciting time for the development of the general insurance market for decades.”
“The customer is at the heart of these changes. The recurring theme throughout the 200 pages of rules is a drive to improve customer outcomes and fairness. For a firm to truly understand whether they are delivering long-term fair value, they need to first understand what fair value means to their customer base. This understanding will be pivotal in the success of any innovation and will enable a brand to not only ensure compliance but translate it into a sustainable and profitable customer relationship.”
“Today’s report demonstrates that the FCA has listened to the industry. Amends have been made to the rules accordingly – but not to give firms an easier ride. The regulator’s amends are absolutely focused on avoiding the creation of unintended consequences and harm to consumers. Undoubtedly the next few years are going to be hard for the industry, but these changes are necessary if consumer trust is to be rebuilt.”