The Financial Conduct Authority’s general insurance market study: what does it mean?
On Wednesday 31 October 2018, the Financial Conduct Authority (FCA) launched a market study into how general insurance firms price home and motor insurance policies. The study, which is designed to ensure insurers have appropriate strategies in place to protect and treat customers fairly is set to be released next year. Alongside this, they have also published a paper that discusses fair pricing, both designed to try and make insurance pricing more transparent and fairer across the board. The FCA has raised concerns that current pricing strategies may cause harm, or alienate vulnerable customers and believes that insurers should be held more accountable and justify the rates they are charging their customers. The supervisory work that was carried out prior to this announcement has already highlighted a number of concerns, including firms failing to have appropriate or clear pricing strategies, governance and controls. Basically, the FCA has found that auto-renewal contracts and discrepancies with pricing certain items is very inconsistent, and could be catching some customers out. The FCA’s position appears to be that this is no longer acceptable and it needs to be addressed so that everyone has equal and fair access to insurance policies across the market. As a minimum the FCA expects firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing. Whilst there seems to be some apprehension from some sections of the market as to how intrusive and revealing the probe may be, the general feeling is one of realisation that this review is long overdue and that general insurance pricing activities ought to have a greater level of consistency and fairness across all firms. What does this mean for the pricing market? This review will undoubtedly mean some major changes are on the horizon for insurers. If the review uncovers what many expect it will, I foresee some regulatory changes coming into effect to stop practices that may be deemed harmful, unfair or discriminatory. If this is the case, major insurers should be prepared to make some radical changes to their pricing process, practices and governance. If the FCA run at this market review as hard as we expect them to, I think new business premiums will rise due to many insurers having to reduce renewal premiums to comply with the FCA’s expected recommendations. This unfortunately will hit the pocket of all customers buying personal general insurance products and has the potential of greatly impacting customers who choose not to renew existing policies and shop around every year. The main question many insurers are asking at the moment is not whether change is coming but when change is coming. As you will expect, insurers are keen to understand how quickly proposed changes to current practices will need to be implemented by. This no doubt will be a contentious and contested point for the regulator and industry to iron out. What does this mean for the recruitment market? As for the recruitment market, I believe this will create some real opportunities for skilled candidates in this area. As with any major change comes work, and I envisage that this review will give insurers serious food for thought. Many will have to ask some hard hitting questions around whether they wipe the slate clean and start from scratch or implement a remedial or redress programme to bring their pricing in line with FCA expectations. I would therefore advise candidates in the area to look out for any developments that are released over the next 12 months. For those insurers that feel major changes will be needed, now might be the time to look for the resource you require to carry out such work. For candidates currently in the sector and thinking of a new opportunity, I believe the next 12 months will see the demand for talent increase, which could push salaries / day rates above current market rate. The FCA aims to publish an interim market study report in summer 2019, which will set out preliminary conclusions including a discussion of potential remedies. It aims to publish its final report and, where required, consultation on proposed remedies by the end of 2019. If you would like to discuss how this news might impact you, please feel free to get in touch with me. You can email me at firstname.lastname@example.org or call me directly on 0151 224 1480.