Shayne Halfpenny-Ray examines the FCA’s BI test case and proposals to stop ‘price walking’
This year, Covid-19 has had a huge impact on our way of life, as well as on all parts of our economy. Not a single profession has escaped unscathed from the impacts of the pandemic, and insurance is no different.
From having to respond quickly to global lockdowns, travel bans, office closures and enhanced medical trials for a vaccine, to thousands of other activities that required a firm and quick grasp. It is fair to say insurance has been at the forefront of helping us adapt our lives to (the now exhaustingly overused) ‘new normal’.
Since the last issue of The Journal, we have seen the High Court judgment on the Financial Conduct Authority’s (FCA) business interruption (BI) insurance test case, which, despite some of the communications on the day it was passed, was far from a clearcut decision, and the impact it has on individual policies for thousands of people and hundreds of insurers, is complicated to say the least.
On 2 October, the High Court granted ‘leapfrog’ certificates for an appeal to the Supreme Court to: the FCA, Arch Insurance (UK), Argenta Syndicate Management, MS Amlin Underwriting, Hiscox Insurance Company, QBE UK, Royal & Sun Alliance Insurance and Hiscox Action Group. It may also now seek permission to appeal from the Supreme Court itself.
Ultimately, the Supreme Court will decide what appeals it will hear and, of course, what its final judgment will be. However, our key messages remain consistent: there needs to be greater clarity on product governance processes and product wordings (we have formed a Transparency Forum to progress this cause); improve advice processes (and non-advised buying processes) to help clients understand both the insurable and non-insurable risks that they face; and more long term, establish an approach to pandemics and other systemic risks that clearly sets out the scope of government intervention.
Alongside this, the FCA has also put product pricing in its sights, with the release of its market study on home and motor insurance. The FCA’s key concern is that these markets are not working well for consumers and it has therefore set out a package of measures it believes can remedy this.
The key measure is a relative ban on ‘price walking’. The FCA’s proposal would be for firms to be free to set new business prices, but they would be prevented from gradually increasing the renewal price to consumers over time, other than in line with changes in customers’ risk. The regulator believes this would mean that, for existing consumers, their renewal price would be no greater than the equivalent new business price.
As part of these measures, the FCA is also consulting on other new measures to further boost competition and deliver fair value to all insurance customers, including:
- Product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term.
- Requirements on firms to report certain datasets to the FCA so that it can check the rules are being followed.
- Making it simpler to stop automatic renewal across all general insurance products.
The FCA is seeking views on its proposals by 25 January 2021. It will consider all the feedback and intends to publish a policy statement and new rules next year, along with its response to the consultation feedback.
As always, the CII will keep you informed of any and all developments related to the above and any other regulatory changes to come.
Shayne Halfpenny-Ray is policy and public affairs adviser of the CII