Mohammad Khan, UK General Insurance Leader at PwC UK, said:
“The FCA’s proposed remedies to pricing and renewal processes will reward loyal customers, but could increase the cost of insurance for others.
“In particular, consumers who regularly shop around for motor and home insurance will likely see premiums rise. For some young drivers who regularly shop around, their new annual insurance premium may rise by more than £50.
“The proposed remedies will, however, have some time to be enacted - potentially by 2022 at the earliest - which means that customers who don’t traditionally shop around for insurance will not see the potential benefit of this for another two years.
“The proposed rules can have a significant impact on certain business models particularly firms with large back books. Firms will be reviewing the impact of these remedies on their strategies and business models. Considering the strength of the proposed remedies it is likely the insurance and broker markets will see significant changes well before the date the new rules become effective.”
Notes to Editor
After a long wait, the range and depth of potential action will be concerning for the industry. Although the pricing remedy is the most significant proposed measure, the other proposals will require firms to change processes and systems on product oversight and governance, implement new reporting requirements and make operational changes on renewal processes to allow customers to cancel auto-renewal in a number of flexible ways. Firms will need to identify a senior manager responsible for putting in place these changes and the operational burden will be significant.
The proposed remedies will have just as big an impact on insurance brokers who sell general insurance and pure protection products as they will on insurers. Many brokers will have to change their pricing to comply with the proposed remedies. Insurance companies that sell their products through brokers will have to ensure that brokers are complying with these remedies. This will increase the admin burden and therefore costs on insurers, which will eventually be passed on to customers.
Overall, the proposed remedies are likely to result in winners and losers for both the industry and among policyholders. It remains to be seen what the impact of the remedies will be on the market as a whole. In the long term policyholders will benefit if competition is healthy and effective.
Manager, media relations, PwC United Kingdom
Tel: +44 (0)7483 422914