Three years after the FCA attempted to level the playing field between new quotes and renewals, Sarah Vaughan, Director, of Angelica Solutions, looks at the unintended consequences;
Three years on from the introduction of the General Insurance Pricing Practices (GIPP) regulation, the landscape of the insurance market has shifted significantly. While GIPP has successfully driven greater transparency in pricing, it has also led to higher consumer costs, fewer real choices, and increased complexity in selecting the right coverage.
A key concern is that new business vs. renewal business premium ratios, at least for Motor, are now approaching pre-GIPP levels, according to EY’s analysis of ABI premiumsi. This suggests that while some insurers have managed to adapt within the new regulatory framework, others have simply reinstated old pricing patterns in different forms.
Additionally, the proliferation of new insurance products while theoretically offering more tailored solutions, may be detrimental to consumers by creating confusion and making it harder to compare policies effectively.
Where GIPP Fell Short
At its core, GIPP sought to eliminate price disparities between new and renewing customers. While this should be a win for fairness, the reality is that the regulation disrupted a core profit stream for insurers. The result? Higher average prices. By removing the cross-subsidy between customers who shop around (elastic consumers) and those who remain loyal (inelastic consumers), insurers faced a choice between trying to replace that profit stream or accepting lower profits. The latter was never likely to be palatable.
In addition, closer scrutiny of APRs and instalment fees that were used to bolster profits and cover higher claims risks have forced insurers to explore alternative ways to maintain their margins. One of the most notable trends has been the rise of tiered and stripped-back policies which, while appearing to offer choice, have inadvertently created confusion and increased the risk of underinsurance. Consumers that are unfamiliar with the nuances of coverage, may select a lower-cost policy only to discover later that it falls short of their needs when making a claim.
Beyond pricing dynamics, GIPP has had a knock-on effect on market competition. The increased regulatory burden, combined with recent historic-high interest rates, has deterred capital investment in the insurance sector. With less capital flowing in, we see reduced choice and competition, an economic reality that invariably leads to higher prices.
This is particularly evident in the decline of Managing General Agents (MGAs) in personal lines. MGAs had been a crucial driver of innovation and competitive pricing in the market, but the weight of additional regulatory requirements has made it increasingly unviable for capacity providers to support them. As a result, these providers have pivoted to commercial lines where pricing practices and consumer duty regulations do not apply, leaving personal lines consumers with fewer choices and higher premiums.
Key actions for the Industry
While the principles behind GIPP were well-intentioned, the curtailing of one line of competitive pricing strategies has ultimately resulted in higher costs across the board. No business aims to see its profitability decline—if it did, we’d quickly be talking about job losses and diminished customer service. Instead, insurers have responded by passing on costs to consumers, making insurance less affordable and in some cases, less effective in protecting policyholders.
The challenge now is to recalibrate the balance between regulation and market vitality. Policymakers must recognise that overcorrection in pricing regulations can have far-reaching consequences, stifling innovation and reducing consumer benefit. Moving forward, the industry should focus on two key areas:
Enhancing transparency in pricing
The industry should challenge itself to improve clarity and transparency on premium levels over time. If we look to other sectors such as mortgages, savings and utilities, new business acquisition offers and discounts are key tools for driving competitiveness, but consumers are much clearer about what will happen 1,2, 3 years down the line.
It’s true that there are many factors that influence price changes from one year to the next, from claims inflation to improved understanding of risk, legal changes, supply chain impacts and more. All this is then overlayed with business priorities and capital constraints which may be driven by events well beyond the bounds of the product in question. It seems that insurers can hide behind this complexity and offer consumers no certainty at all about their future insurance costs.
Reducing complexity and improving consumer understanding
Insurers should reconsider whether the surge in varied product offerings truly benefits consumers or simply makes it harder to compare policies effectively.
The industry must prioritise clearer product differentiation that aligns with genuine consumer needs, rather than overwhelming them with options designed primarily to optimise profitability.
A call for proactive Industry leadership
A prompt and thorough review of the macro impacts on new business vs renewal prices is needed. This would require comprehensive data and technical analysis to avoid drawing incorrect conclusions from the impacts of other market and economic dynamics.
GIPP was introduced to bring fairness and transparency to the insurance market, but it is now clear that additional refinements are needed. Insurers, regulators, and consumer advocacy groups must work together to ensure that pricing practices do not merely evolve to circumvent regulations but genuinely serve consumers’ best interests. The Irish approach to price walking regulation, which constrained price walking from year 1 onwards but left new business open to competition, could provide useful insight for any review of the GIPP regulation.
The insurance industry has an opportunity to lead the way in creating a pricing ecosystem that balances transparency, competition, and consumer trust. As we move forward, we must shift the focus from regulatory compliance alone to meaningful reforms that ensure sustainable and equitable pricing for all policyholders.
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