As the FCA seeks feedback on its plans to ensure a fair price for all insurance customers, Aamina Zafar examines the potential implications for the profession
The UK insurance profession must brace itself for short-term volatility under the regulator’s radical plans to ban dual pricing, an expert warns.
Peter Thompson made the stark prediction after the Financial Conduct Authority (FCA) revealed its move to ensure that anyone renewing their home and motor insurance policy should be charged the same price as a new customer. This follows the regulator’s market study into the pricing of home and motor insurance, which found that a whopping six million policyholders are charged a higher rate than new customers.
Mr Thompson, CEO of insurance distribution and outsourcing for BGL, which owns Direct Dial, says: “There is no doubt that this would be a significant change to current market practice and general insurance pricing, moving away from customer purchasing decisions based, primarily, on price. Implementing the remedies from the Market Study will no doubt bring volatility to our market in the short term, which means that increased agility will be hugely important. However, I am confident that this period will bring real opportunity for those equipped and determined to harness the positives from it.”
Interestingly, the CII’s latest Public Trust Index found that consumers wanted to see a discount for staying with the same company at renewal. The research quizzed 1,000 consumers and 1,000 SME employees and found that avoiding dual pricing is important to policyholders to feel that their loyalty is being acknowledged.
Commenting on whether the new plans will improve trust in the profession, Mr Thompson adds: “In our view, for this to be achieved, it is critical that a level playing field is applied to all market participants; and how these remedies are adopted, supervised and enforced will be a key success factor for the industry, the FCA and ultimately, customer outcomes.”
However, Huw Evans, director general of the Association of British Insurers, warns that the changes will not mean cheaper prices for all. He says: “The current system produces winners and losers, with many new insurance customers and those switching able to get good deals, while those who do not sometimes lose out. We support moves to rebalance the market. The insurance industry was the first sector to tackle the issue, with an initiative launched two years ago having already led to average savings of between £40 to £150 for some longstanding customers.
This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects about six million customers
“We will work with the FCA on the most appropriate measures and it will be vital that price comparison websites and insurance brokers are subject to the same level of supervision and monitoring by the FCA, to ensure a balanced approach and a meaningful implementation. But it must be recognised that not everyone will be a winner, as the regulator accepts in its Market Study: ‘We expect that our remedy package will probably lead to some consumers paying higher prices if they currently benefit from significant new business discounts as inducements to switch.”
The FCA set out potential remedies to tackle concerns about general insurance pricing as part of its interim report in October. In the document, the regulator said that about six million policyholders pay high prices and are not getting a good deal on their insurance. In fact, it found that if those customers paying high premiums paid the average premium for their risk, they could save about £1.2bn a year in total.
Worryingly, the FCA’s consumer research found that one in three consumers who paid high premiums were classed as vulnerable, with a lower financial capability.
Christopher Woolard, executive director of strategy and competition at the FCA, says: “This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal.
“We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.”
The FCA is currently seeking views on its proposals, until 25 January 2021. Once the regulator has considered the feedback, it intends to publish a policy statement in Q2 2021.
The new changes have been welcomed by Aviva, which has taken a lead role in working to tackle some of the issues of insurance pricing through limiting the differences between new and renewal prices and testing new insurance products with a renewal price guarantee.
Gareth Hemming, managing director of Aviva’s personal lines business in the UK, says: “We support the FCA’s intent to bring greater clarity and consistency to consumers across general insurance pricing.
“We are committed to working with the FCA and the industry to further address consumer concerns on price differences and ensure any changes are fair to all customers, regardless of how they buy their insurance. We will share what we have learned through the actions we have taken and continue to contribute to the FCA’s consultation.”
Aamina Zafar is a freelance journalist