Countdown to the next pricing attestation by 31st March 2023

With the run up to the next pricing attestation by 31st March 2023, on 2 December 2022, the FCA published its findings from a multi-firm review on the final home and motor insurance pricing rules (introduced in May 2021, came into effect on 1 January 2022), and the attestations firms and their senior managers have provided in March 2022 regarding their compliance with these rules.

The review considered the extent to which a sample of firms (18 insurers and 48 intermediaries) which provided an attestation on compliance with the pricing rules, have implemented systems and controls to enable them to do so, whether this was done consistently across the market, and whether any action is needed to rectify failings relating to the attestations or improve firms’ understanding of the rules.

Whilst the regulator deemed that most firms in the review had taken appropriate action to implement systems and controls to enable compliance with the pricing rules, areas for improvement were identified around the need for improved evidence and record-keeping. With the March 2023 deadline for the next senior manager attestation fast approaching, it is important that individuals making the attestations are doing so with robust evidence.

FCA notes that: “We will continue to actively review and scrutinise firms’ attestations and the systems and controls that underpin these, aligned to their pricing data submissions, and expect firms to make improvements to address the issues identified in our findings. Where we see firms and individuals failing to meet their regulatory obligations, we will act using the full range of regulatory tools available to us.”

Firms should use the good practice and areas for improvement to identify any fields of improvement ahead of the March 2023 attestation. It is important that there is the sufficient level of data / Management Information and appropriate systems and controls, including regular monitoring, around ongoing compliance with the pricing rules. Sicsic Advisory has developed an attestation template setting out the key requirements, which is a valuable tool for the Senior Manager making the individual attestation to help ensure all aspects have been captured to the required regulatory standard.

Reminder of the requirements
Every firm subject to the pricing rules is required to attest annually that they comply with ICOBS 6B and that their pricing does not discriminate against customers of longer tenure. This attestation must confirm whether they have complied with the pricing rules throughout the reporting period, and that relevant sales practices are consistent with the objectives of the rules.
The pricing attestation must be provided by a single person, who holds a senior management function in the firm or where a firm is not an SM&CR firm, by a director of the firm. It must be provided by 31 March each year for the previous calendar year.
In its review, the FCA found in four of the 48 intermediary firms that the attestation had not been made by an appropriately senior, accountable individual. Firms are therefore urged to ensure that the individual making the attestation meets the requirements and has a sound understanding of the firm’s pricing practices, including actions taken by their firm to demonstrate compliance. For SM&CR firms, we would recommend that this accountability is captured in the individual’s Statement of Responsibility.

The need to attest – don’t assume a nil return
The FCA’s review centred on firms which made an attestation. However, we are aware of some confusion across certain areas of the market where firms which are subject to the pricing rules have not fully understood their role and previously provided a ‘nil’ return.
As a reminder, the pricing rules apply to any firm with a “price setting” role. In essence you are a “price setting intermediary” if your remuneration impacts the final price paid by the customer. This can occur when you receive a net rate from the insurer for a core product or an ancillary product, when you apply an override on the net rate received from the premium finance provider, and finally when you charge fees in addition to the premium. The next attestation due by March 2023 is an opportunity for brokers to review the position and ensure that they are complying with the requirements and report correctly to the FCA.

Quality of records and evidence
FCA assessed whether the actions firms took and the quality of the records that the senior manager relied upon when attesting. They also considered firms’ ongoing monitoring and compliance with these rules after 1 January 2022.
The review found that only 11 of the 66 firms provided records that met the regulator’s expectations. A compliance rate of 17% is clearly not an acceptable position, so firms should take the regulator’s warning shot that it “expects firms to make improvements to address the issues identified” very seriously. It is not enough to be adhering to the rules, but equally important to be able to evidence and demonstrate this through robust governance, systems and controls, supported by detailed analytics and management information. In a Consumer Duty world of testing and evidencing good customer outcomes, this is even more important.

Specifically, firms should take note of the need to:

• Clearly set out their approach and actions taken, including controls to ensure compliance with the pricing rules.
• Maintain robust evidence that the controls are working as intended.
• Have clear evidence that prices being generated by pricing models are considered against the rules and ensure there is no discrimination against customers based on their tenure.
• Establish and maintain appropriate pricing governance and controls, including procedure documents to demonstrate compliance. This should set out ongoing oversight and processes, including MI that evidence that renewal prices do not discriminate by tenure.
• Deliver an appropriate oversight and compliance framework, covering the quality assurance / monitoring processes and MI reports in place.

We would also remind firms of the rules around properly documented decision-making, particularly for any changes to the approach to pricing, in line with the ICOBS 6B rules. The absence of robust documentation will lead to non-compliance with specific aspects of the rules (material decisions, audit trail) and make it also harder to demonstrate compliance with the spirit and the letter of the regulation.

How we can help
Sicsic Advisory has helped a range of firms across the entire insurance distribution chain in their implementation and embedding of the General Insurance Pricing Practices requirements. These include tier 1 insurers, MGAs, broker networks and a variety of intermediary firms. Our hands-on, practical approach has helped firms navigate the various challenges to their business models and pricing strategy, and to develop pragmatic solutions. We have gained valuable insights into FCA expectations for the attestations and underlying processes, procedures, systems and controls, having assisted several firms subject to regulatory scrutiny from the first year of implementation.