Tim Evershed examines how the FCA’s new pricing rules will affect insurers’ strategies
The start of this year saw the introduction of new pricing rules on home and motor renewals brought in by the Financial Conduct Authority (FCA). These ‘price walking’ rules mean that premiums charged to all renewing home and motor insurance customers cannot be greater than the price charged to an equivalent new customer for the equivalent policy.
The FCA has acknowledged that these changes will probably lead to some consumers paying higher prices, if they currently benefit from significant new-business discounts.
The Association of British Insurers (ABI) says that premiums will continue to be calculated independently by insurers, using a wide range of factors. However, questions remain about how the new rules will impact insurers’ pricing strategies, rates for both new business and renewal premiums, as well as possible knock-on effects on other lines of business.
Better outcomes
According to Mark Townsend, managing director of motor and home at BGL Insurance, prices change in a reasonably volatile manner during the month of January but the rate of change has now begun to ease.
He adds: “The removal of price walking from the market has been a good thing – it has led to better customer outcomes already by removing that loyalty penalty. Customers in the market generally are tending to see reductions in their prices at renewal, or premiums are being held consistent from last year to this year, and customers are responding well to it.
“The pricing penalty, that price-walking practice, has been removed from the market. New business prices are slightly higher than they would’ve been. The difference between a renewal price and a new business price is smaller than it would have been for those customers that are inclined to shop around, but the changes do seem be landing well with our customers.”
New home and motor prices have generally gone up by about 5% to 10% since 1 January, according to Mohammad Khan, head of general insurance of PWC UK.
Renewal prices have fallen since 1 January by up to 5%, but renewal prices had already begun falling last year in anticipation of the price change, Khan adds.
He says: “What we’ve seen so far is that lots of insurers have gone in with their pricing strategy for 1 January and they are all very different pricing strategies. People are now looking to see what everybody else has done.
it’s important that the FCA and the industry remain focused on ensuring the new rules are fair to all customer groups, to avoid unintended consequences
“What we haven’t seen a lot of is many individual insurers changing their pricing day to day, which is what some people expected to see. This is a much longer-term thing – it will take a full year before we see the real impact of it.”
Greater consistency
Insurance giant Aviva welcomes the changes from the FCA, for helping to bring greater consistency to consumers across general insurance pricing.
Jon Marsh, partnerships and transformation managing director of Aviva General Insurance, adds: “However, it’s important that the FCA and the industry remain focused on ensuring the new rules are fair to all customer groups, to avoid unintended consequences.
“It is only a few weeks since the new rules were introduced and some firms may have used the transitional period to 17 January, so it really is too early to draw any meaningful conclusions at this stage.”
There had been speculation that the prevention of price walking in home and motor would create new practices, such as preferential pricing in other areas. However, those watching the market say it is too early to say if this will happen.
In a statement, Aviva says: “We’ve been asked if we’ll be adopting a similar policy for health insurance pricing. At the moment, the pricing remedy rules don’t apply to health or PMI products. As you’d expect, we aim to price our health products fairly, but pricing for health products is different to pricing for home and motor insurance.
“For health products, we normally underwrite customers only once at the start of their policy. Generally, the more recently a customer was underwritten, the less likely they are to claim. Plus, some customers may have long-running conditions – such as cancer – where we may fund treatment for many years. Because of this, we think it’s reasonable to reflect this in the price we charge. This means premiums may go up at renewal.
“That’s why we believe it would be inappropriate to adopt the same approach as for home and motor insurance. However, you can be sure we’ll take every care to make sure both new and existing customers receive good value.”
However, Khan points out that there are other factors influencing insurers’ pricing strategies.
He says: “Claims inflation has been running at 5% on those for the past few years and it is going up. So, looking at pricing more generally, prices fell in motor and home last year, so I expect prices to need to rise further as we go deeper into 2022, to keep up with that claims inflation.”
Tim Evershed is a freelance journalist
