The FCA GI pricing practices market study – what does it mean for brokers?

Following the announcement of the recent Financial Conduct Authority (FCA) General Insurance pricing practice review, you may be questioning what it means and how it will affect your business.

To help you understand the new rules, Source has put together some information for you.

What is it?

In September 2018, the Citizens Advice Bureau filed a “super-complaint” in relation to insurance pricing for new and existing customers and the so-called “loyalty penalty”. The FCA began an investigation of the insurance market and published their results in September 2020. At the end of May 2021, they published their final rules, most of which come into force by the end of this year.

 

What are the rules?

The pricing practices review has brought about changes to these three key areas:

Renewals

  • Dual-pricing ban – Insurers will no longer be able to offer introductory prices for new customers. The rules state that new customers cannot be offered a cheaper premium (including discounts, refunds etc.), than a renewing customer with the same risk.
  • Auto-renewal opt-out – All customers must be given the option to opt-out of their policy automatically renewing, at the point of sale and available throughout the life of their policy.

Products

  • Fair value assessments – Product providers will be required to undertake regular “fair value assessments” of the products they offer, to ensure they are providing their customers with a fair product offering within the market.
  • Premium finance disclosures – Brokers and anyone involved in the insurance distribution chain must disclose information relating to the cost of premium finance.

Reporting

  • Product review – Anyone involved in the insurance distribution chain must undertake annual reviews and reporting of the products they offer. There is currently no fixed format; however, the FCA has set out certain information that should be considered as part of the review.
  • Reporting obligations – There are new reporting obligations for every firm, although these shouldn’t prove too onerous for the majority of brokers.

When does it happen?

The key dates are:

  • 1st October 2021 – Changes regarding product governance (“fair value assessments”), premium finance, and systems and controls.
  • 1st January 2022 – Changes regarding pricing, auto-renewal and reporting.
  • September 2022 – The first pricing/fair value report, covering the period January to June 2022, is due. Reporting moves to an annual cycle, thereafter.

How does it affect me?

  • The FCA has forecasted a reduction in switching at renewal due to the time vs. reward calculation. Which could result in less time for brokers spent at renewal, looking for a cheaper product.
  • If brokers don’t already complete annual product reviews, this will need to become commonplace. If brokers do already undertake annual reviews, these may need to be more detailed. Whilst there is currently no fixed format or template, the industry is likely to develop a ‘best practice’ approach.
  • Brokers will need to introduce disclosures around premium finance costs and auto-renewals at the point of sale, which will mean an amendment to their usual sales process.

How does it affect my clients?

  • Customer buying behaviour may shift, as insurers become unable to offer “new customer” discounts. However, the guidelines do not prevent insurers offering “loyalty” discounts to existing customers who renew.
  • Customers will be able to opt-out of auto-renewals at any time during the purchase or term of the policy.
  • Customers will be provided with more information around the cost of premium finance, allowing them to make informed decisions.
  • Customers are likely to have access to policies that actually suit their requirements, rather than increased limits, which often aren’t necessary.

 

What are Source doing to help?

This is potentially one of the biggest changes to GI compliance in recent years.

Source have been thoroughly reviewing the paper published by the FCA to interpret the rules and will continue to release updates as and when more information or confirmed guidelines are provided, to ensure you are prepared.

Source also hosted a webinar about the changes, which you can watch on-demand, here https://www.thesource.co.uk/learninglab/fca-gi-pricing-practices-webinar

If you have further questions, please reach out to Source www.thesource.co.uk/contact-us

By Phil Lewis, Head of HR & Compliance at Source Insurance