Deadline for FCA Insurance Pricing Rules Approaches
Following a study that lasted two years, the Financial Conduct Authority (FCA) has established new rules regarding pricing practices used by insurance providers, the first deadline of which is approaching in October.
The primary purpose of these changes is to prevent providers from price walking customers. ‘Price walking’ refers to firms making unjustified gradual increases to customers’ premiums upon their annual renewal. According to the FCA’s findings, insurance providers have been using complicated and unclear pricing methods while targeting customers likely to renew. This results in loyal policyholders being coerced into paying more.
Some specific results from the FCA’s analysis include:
- The average new motor insurance policyholder pays £285 annually, while those who have been with their provider for more than five years pay £370.
- New building insurance policyholders pay on average £130 annually compared to £238 for customers who have spent over five years with their provider.
- Those with a new contents-only insurance policy pay an average annual premium of £56, whereas £138 is spent by customers who have been with their provider for more than five years.
By putting a stop to price walking, the FCA hopes to improve the general functionality of insurance markets, create greater transparency for consumers and ensure that insurers are providing fair value.
To comply with the new regulations, providers may need to make a number of major changes to their operations. The FCA has set two future deadlines that the insurance industry should be aware of.
The first of these deadlines arrives on 1st October, 2021. Ahead of this date, firms must adhere to product governance, and systems and controls rules. This means setting up and implementing the proper tools to determine if customers are receiving fair value for their cover.
Insurers will then have until the end of 2021 to comply with rules related to reporting, as well as regulations for pricing and auto-renewal remedies. This means that starting 1st January 2022, firms must be ready to provide clients with information on the terms and conditions of automatic renewal, how a renewal will affect their policy and how customers can cancel the automatic renewal process. A transitional period will be allowed until 17th January 2022, as long as benefits are backdated to policyholders starting at the beginning of the year.
For more information on the FCA’s new rules and its related findings, click here.