A SUMMARY OF THE FCA GI PRICING PRACTICES STATEMENT
The FCA has recently published its policy statement and rules from the “General Insurance pricing practices” consultation paper. Key areas that have been looked at include fair value in the products, remuneration in the distribution chain, premium finance and the auto renewal process.
The FCA found that the Home and Motor insurance markets were “not working as intended for customers” and a number of changes have been proposed to ensure fairer outcomes for the customer.
This is a summary of the key changes:
- The guidance is for insurers and distributors who set prices, but some elements will affect all parties in the distribution chain including advisers.
- The practice of “price walking” will no longer be tolerated. This means the renewal price of the policy must be no higher than the equivalent new business price.
- Insurers and manufacturers must demonstrate that products offer ‘value’ to consumers.
- Auto renewal will need to be made clear to the customer including the ability to easily ‘opt-out’, both at the point of sale and after the sale.
- Remuneration/commission paid in any distribution chain needs to reflect the work each individual firm carries out.
- Premium finance (and other add-ons) is viewed as part of the ‘total cost of insurance’ to the customer.
- The overall aim is to provide better outcomes to customers.
- The new Pricing rules come into effect 1 January 2022.
- 31st May 2021 - FCA policy statement and rules from the “General Insurance pricing practices” consultation paper published.
- 1st October 2021 - Firms must implement the systems and controls (SYSC) and product governance (PROD) changes.
- 1st January 2022 - The Pricing and Auto-renewal rules come into effect.
- End March 2022 - The first confirmation that the firm’s pricing models comply with the FCA’s pricing remedy (confirmation required each year after that).
Assurant Intermediary supports the FCA’s position on ‘price walking’ and the changes it is making. It is a practice we do not employ. Like most businesses we are now refining our approach and processes in line with all the new Regulations.
WHAT IMPACT WILL THESE RULES HAVE TO AN ADVISER’S BUSINESS?
- Obvious changes when quoting and applying for insurance products from January 2022 will be around pricing and the auto-renewal process.
- A significant impact will be the ban on “price walking” where new business has been priced to win the business initially and then premiums subsequently increased year on year.
- Effectively, under the existing rules a lot of new customers have got a better price for new business than existing customers at renewal for the same risk.
- Going forward, the renewal price can be no greater than the equivalent new business price the firm would offer a new customer.
- Auto-renewing will have tighter controls with a bigger onus that providers clearly explain at point-of-sale (and at renewal) whether a policy is set to auto-renew and what this means for the customer. Advisers will need to explain this at the point of sale.
- Fair value rules will mean that there will be a responsibility for all companies in the distribution chain, including the adviser, to demonstrate the value they add in servicing their clients represents fair value for the payment they receive.
- Insurance providers need to ensure robust product governance is in place which is designed, managed and marketed in a compliant way throughout their lifecycle.
WHAT DOES THIS MEAN?
- Whoever your preferred provider may be, advisers being able to compete on price against the direct providers or price comparison websites has always been difficult. However, the ban on “price walking” is likely to place more value on the service and advice a consumer receives.
- New business prices across the wider market are expected to increase.
- The FCA has not banned auto-renewals completely which is a positive for policyholders as it will help insurance policies lapsing.
- This can be a great checkpoint for advisers to ensure the policy is still appropriate for the customer and to make a minimum of annual contact with the customer.
- One of the key areas that all areas across the distribution channels will need to review, will be the value of the commission they pay and receive.
- There are generally common commission rates paid to adviser firms across all distributors that have remained the “norm” for several years.
- Distributors will need to understand and respond to the Fair Value assessment, including annually reviewing products to ensure products are fit for purpose and working as expected through reviews of their distribution arrangements.
- This is a big opportunity for advisers to build and grow their GI book of business where the focus should be on value and cover rather than a cheap price.
- Advisers can start to get into the habit of asking and reviewing home insurance for all clients – homeowners and landlords, new purchases, re-mortgages and product transfers. Don’t neglect leasehold clients (or even renters) who are likely to need contents only insurance.
- It could be the existing policy is still very appropriate in terms of cover and price, but you can ask the question to make sure all your customers have the right cover in place for their needs.