The FCA this morning released their final Policy Statement on General Insurance Pricing Practices. Mohammad Khan, UK Insurance Leader at PwC UK comments on the implications on consumers and the insurance industry:
“The FCA is forging ahead with its plans to ensure that customers pay the same prices for their motor and home insurance policies irrespective of whether they are buying a new policy or renewing with the same insurer.
“After the FCA Pricing Practices is implemented, in January 2022, we believe that overall prices will rise by between 5% and 9% for customers who regularly shop around as insurers remove the new business discount that can no longer be offered.”
“Until then competition for motor and home policies will remain fierce. Our forecast for the rest of this year is that premiums will drop by between 5% and 7% due to this competitiveness, so if your policy is due to renew in the second half of 2021, you should shop around for the best price.
“When the changes do come in there will undoubtedly be winners and losers. Winners will be people who have renewed for a number of years with the same insurer, who will see their insurance premiums reduce. For example, if a customer has been with the same insurer for over five years, they could see their premiums reduce significantly - for some customers, it may even halve.
“Customers who shop around annually for their motor or home policy will see their premiums increase. This is because under the current system, if you buy a new insurance policy you get a new business discount. Under the FCA’s new rules, this discount will be removed. For some young drivers who regularly shop around, their new annual insurance premium could go up by more than £200 due to the removal of the new business discount.
“Given the short implementation period - this has to be in by December - the countdown is now on for firms to implement the FCA’s new rules which will have implications for governance, pricing models, reporting, technology, customer communications and ultimate pricing.”
Notes to Editor
The range and depth of the new rules is a significant change for the industry. Although the ban on loyalty premiums is the most significant new measure, the other measures 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. Firms will need to identify a senior manager responsible for putting in place these changes and the operational burden will be significant.
The new rules introduced by the FCA 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 new rules. This will increase the admin burden and therefore costs on insurers and distributors, which will eventually be passed on to customers.
Overall, the FCA’s new rules 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 new measures will be on the market as a whole. In the long term policyholders will benefit if competition is healthy and effective.