The Financial Conduct Authority (FCA) has published the final report of its market study into the pricing of home and motor insurance, addressing concerns that these markets are not working well for consumers.
The FCA has proposed significant reform of these markets through measures which seek to enhance competition, ensure consumers will receive fair value, and increase trust in these markets.
The report proposed that when a customer renews their home or motor insurance policy, they should pay no more than they would if they were new to their provider through the same sales channel; for example, if the customer bought the policy online, they would be charged the same price as a new customer buying online.
Under this system, firms would 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 FCA identified that 6 million policyholders were paying high or very high margins in 2018; if they paid the average for their risk, they would have saved £1.2bn.
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 data sets; making it simpler to stop automatic renewal across all general insurance products.
In the long-term, the proposed remedies aim to improve competition, leading to lower costs for supplying insurance, and lower prices paid by consumers on average.
The FCA estimated that its proposals will save consumers £3.7bn over 10 years.
The FCA is seeking views on its proposals by 25 January 2021; it intends to publish a Policy Statement and updated rules next year, along with its response to the consultation feedback.
The FCA has also published rules on the publication of value measures data on claims frequencies and acceptance rates, average claims payouts and claims complaints across all general insurance products.
Christopher Woolard, interim chief executive of the FCA, said: “We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers.
“The package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.”