On March 1, 2016 the Financial Conduct Authority (FCA) published feedback on its discussion paper: Developing general insurance add-ons market study – remedies: value measures (DP15/4). DP 15/4 explored the rationale for looking at value in general insurance (GI) markets and set out what the FCA hoped to achieve by using transparency as a regulatory tool.
The FCA received 47 very mixed responses; while there was general agreement that poor value needed to be tackled, there was no clear consensus about which option would most likely meet the FCA’s objectives.
Additionally, the feedback highlighted the difficulty in measuring value in GI markets. Consumer groups tended to favour claims ratios, either as a stand-alone measure or combined with claims acceptance rates. Firms however were strongly opposed to claims ratio measures, as they considered it too complex for consumers to understand and marginally preferred the scorecard option.
Furthermore, there was concern about the risk of unintended consequences from the publication or disclosure of any value measure data, as consumers may not be able to adequately assess the value measures information in addition to price and product feature considerations.
In light of this feedback, the FCA has decided to take the following steps:
- The FCA intends to take forward the scorecard option, which will include claims frequencies, claims acceptance rates and average claims pay outs, potentially with the inclusion of an average premium metric. It feels that the scorecard could give users a wider breadth of information about GI products sold to consumers and does not have the challenges and costs associated with the claims ratio.
- The FCA prefers publication rather than point of sale disclosure to consumers as a market transparency remedy; however it did state that while it does not propose to introduce point of sale disclosure of value measure data at this stage, it may be considered again in the future.
- The FCA shall run a pilot of the scorecard approach on a limited number of GI products. This shall enable the FCA to refine the remedy design, obtain evidence of its effectiveness and gain evidence of costs ahead of any potential consultation. The FCA intends to launch the pilot in the summer and envisages two data points, each covering a period of one year.