The Financial Conduct Authority (FCA) has published the long-awaited policy statement General insurance pricing practices market study – Feedback to CP20/19 and final rules (PS21/5). The final rules address what has been described as the ‘loyalty penalty’ paid by existing general insurance product customers.
The publication of the policy statement and rules follows a final report published in September 2020 (MS18/1). The policy statement follows a two year study into pricing in the general insurance sector in the UK. An interim report was published in October 2019 setting out initial findings. The rules now published by the FCA follow a consultation paper on proposed market remedies (CP20/19).
The final rules in PS21/5 aim to ensure that customers receive fair value in home and motor insurance products. The FCA believes that these remedies for the general insurance market will work alongside the new consumer duty (on which the FCA is currently consulting in CP21/13 and the final guidance on the fair treatment of vulnerable customers (FG21/1)).
The rules introduce a package of market remedies. These include:
- A requirement that when a firm offers a renewal price to a customer it can be no greater than the equivalent new business price for a new customer.
- Additional product governance rules that require firms to have processes in place to deliver products that offer fair value to customers. These new processes will apply to all general insurance and pure protection products.
- Rules to enable firms to offer accessible and easy options for customers wishing to cancel auto-renewal. These measures will apply to all general insurance contracts.
- Reporting requirements to support the ongoing supervision of the home and motor insurance markets.
When will the new rules coming into effect?
- The rules relating to systems and controls and product governance (in addition to premium finance) will come into effect on 1 October 2021.
- The rules on pricing, auto‑renewal and reporting will come into effect on 1 January 2022, with a transitional provision (of until 17 January) for the rules on pricing and auto‑renewal disclosure.
The policy statement marks the end of a long period of discussion about ‘price walking’ whereby existing customers pay more than new customers for general insurance products. The new rules will require firms to make a number of significant changes to their internal policies and to existing product governance arrangements. In many cases, the new provisions will impact existing distribution arrangements.