Five ones to watch in the FCA’s final general insurance pricing rules

Insurers and intermediaries are in a slightly strange limbo at present. We know that the FCA will publish its final general insurance pricing rules (see FCA will publish its final rules on GI pricing practices) at the end of this month. We also know that it has confirmed the implementation deadlines will be the end of September for enhanced product governance and systems and controls, and the end of December for pricing and auto-renewal. We just don’t know the final rules.

With these tight implementation deadlines looming large, most firms have assumed there won’t be significant changes to the meat of the proposals to ban price walking and the enlarged scope for fair value product assessments. Most have begun preparation work on that basis.

Nonetheless there are some important points that we expect the FCA to clarify when the final general insurance pricing rules are published which could have a significant impact on some business models.

Here are our top five things to watch:

1. Broker margins. There is uncertainty around whether brokers involved in price-setting will have to ensure their margins are the same for new and renewing customers, in addition to the end price. Say an insurer prices a policy at £400 and the broker’s revenue in year one is £100. If the insurer’s rate is £350 in year 2, can the broker charge £150? The end customer won’t see a difference, which seems to be the key aspect of the pricing remedy. However, what does the FCA have in mind with the proposal that “An insurance intermediary that is involved in the setting of any portion of the renewal price of the policy must ensure that the portion they set or their contribution to that portion is set at a level that is no higher than it would be set for a new business customer.” Clarification is crucial.
2. Incentives. There’s a big market in new business and without introductory prices in their armoury, providers will be keenly watching to see whether they can continue to entice new customers with offers such as vouchers and free gifts. Will the FCA provide a view on the types of incentives that will be allowable and the point at which these may become ‘dual pricing by the back door’? And will it take a consistent view between incentives offered by providers and those offered by PCWs, which, after all, do not sell insurance at renewal?
3. When is an add-on an add-on? The proposals contained a very broad definition of additional products which would also be subject to the pricing rules. This could effectively ban giving away breakdown or legal cover to new customers if it is not offered to renewing customers.
4. Premium finance. It looks likely that premium finance will be in scope for product governance as well as pricing, meaning additional compliance requirements beyond the consumer credit rules already in place. When assessing what is in the customer’s best interest firms will be looking for guidance on whether they should benchmark against other premium finance options or also include other products, such as paying on a credit card.
5. Data. The regulator has signalled clearly that it will expect a range of reporting from firms which it will use to compare and benchmark. But not all MI is created equally and the final rules will confirm a standard method of measuring and reporting. These will undoubtedly create complexity and hasty fine-tuning for some firms. However, it is ultimately measured, this sort of information is highly commercially sensitive and the FCA could reassure the market that this data will be used internally and not published.