Industry reacts to watchdog’s report

The interim report published today by the Financial Conduct Authority has generated the expected reactions across the industry. The regulator expresses concerns and indicated it was considering introducing several remedies.

Although some expressed reservations towards the restrictions or outright banning of some practices, most have welcomed the report.

Among them, director-general at the Association of British Insurers, Huw Evans said: "We welcome today’s report from the FCA, and the industry will continue to work constructively with the regulator to ensure that the market works better for customers. It is important that any unintended consequences are carefully considered to ensure that a fair and balanced approach is achieved for all customers.

“Millions of insurance customers get extremely good deals by shopping around regularly, but we agree that the household and motor insurance markets could work better for consumers who do not shop around at renewal,” he added. “This is not an issue unique to insurance, but we are the only sector to have taken voluntary steps to address the issue and these are bearing fruit already.”

Insurance partner at PwC, Jane Portas said that after a long wait, the range and depth of potential action will be “a worry for the industry”. The FCA calculates 6m consumers are getting a bad deal with a cost of £1.2bn annually if they were to pay average premiums. This is more than enough to justify tough, tough proposals. "

UK general insurance leader at the firm, Mohammad Khan commented that some potential remedies to pricing and renewal processes are likely to hit the industry hardest. “The most significant are restricting or banning pricing optimisation linked to how likely consumers are to renew, require automatic switching to lower priced products offering the same level of cover and banning auto renewal or making it opt-in only.

“Some of the proposed remedies are likely to shake up the industry, the FCA recognises supply side remedies are likely to create winners and losers but seem to be willing to take such risk and monitor the situation closely once the remedies are in place.”

Managing director for engagement of the Chartered Insurance Institute, Keith Richards reminded that the issue is not unique to insurance, listing “Internet, cable and telephone companies” as other examples of similar pricing strategies.

“Our own public trust index has shown that pricing practices around renewal are by far the biggest factor that negatively impact consumer trust, and we are not surprised to see the FCA focus in this area,” he said.

“We welcome the FCA’s decision not to intervene in a prescriptive way, but to focus on governance practices within the sector.”

He further suggested that “the only permanent solution to the problem of fair treatment of customers around renewal pricing will come from focussing competition on sustainable factors, such as the quality of protection given to clients, the quality of the claims process, the cost of the contract over the longer term and the speed and ease of service for clients”.

“We know from the research we have done with the Chartered Insurance Institute’s Public Trust Index that consumers value these factors more than the initial price of the contract, but when we buy insurance, the information we are given is mainly about initial price rather than the longer-term cost of the contract or the quality of service we will receive.

“The insurance profession as a whole has a challenge to develop ways to demonstrate the quality of its service as powerfully as the initial cost of the contract.”

Home insurance

CEO of buzzvault home insurance, Becky Downing hopes this package of remedies kick-starts the move to better deals for consumers, as the pricing of home insurance is based on far too much ambiguity. “In fact, contents insurance is a big black hole where insurers don’t really know what they are covering, so resort to blanket policies that don’t reflect what someone actually owns.

“This means that the likelihood of a customer overpaying is even higher, not to mention complicated and costly when they come to make a claim. People need insurance that is in sync with their lifestyles and bespoke to them, ensuring they are not overpaying and simply covered for exactly what they own,” she said.

Former head of general insurance supervision at the FCA, and current partner adviser to Huntswood, Michael Sicsic, said this report should be an opportunity to remedy the loyalty penalty that is resulting in large numbers of consumers not getting a good deal on their insurance.

“A full assessment of fair pricing practices and an end to pricing discrimination is necessary if firms hope to retain customers and avoid further interventionist policies from the regulator in its final report early next year,” he said.

“It is also clear that vulnerability remains high on the agenda, particularly as unfair pricing and high premiums for those who do not switch disproportionately affect vulnerable customers. Firms must adopt a transparent approach to both pricing and communication with customers if they hope to secure value from customer relationships in the long-term.”

Chief executive officer at Direct Line Group, Penny James also welcomed the report, stated that she agreed with many of the possible remedies and stated she “looked forward to engaging with [the FCA] during the consultation period”.

She said: “We want our customers to value the protection, service and security we provide and we know that in order for that to happen we not only need to be clear about pricing but also give them reasons to stay.”

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