Briefing: What can the industry learn from the latest FCA value measures?

By Matt Scott

When the FCA halted the sale of guaranteed asset protection (Gap) insurance in February this year, few in the industry were surprised.

Although the scale of the action caught some market participants off guard, it was no shock that Gap was a target for the regulator.

Beyond concerns over commission levels, it is believed that the FCA was also uneasy about the low percentage of premiums being paid out in claims.

The General insurance value measures data 2022, published by the FCA in September 2023, revealed that Gap policies paid out only 7% of premiums in claims when sold as standalone products – and as little as 4% for add-on policies.

At the time, compliance experts I spoke with believed that the FCA had set an unofficial minimum payout rate of 30%.

The FCA publishes general insurance value measures data to provide common indicators of value across a range of products. The data typically includes claims frequencies, claims acceptance rates, average claims payouts and claims complaints as a proportion of claims.

So, what do the value measures look like for 2023? And do they give us any indication as to where the FCA might look next?

Target areas

An analysis of the latest FCA data by market intelligence firm Insurance DataLab identified several business lines with payout rates falling below a 30% threshold, including Gap insurance.

Despite some improvements in payout rates for Gap policies – both as standalone and add-on products – the figures remain concerning.

Add-on Gap policies continue to have the lowest payout rate at 10%, followed closely by motor excess protection add-ons at 13% – which is two percentage points worse than the previous year.

In total, nine business lines reported payout rates of less than 30%, with most being ancillary products typically sold alongside major insurance lines.

Now, while I am not suggesting that the FCA will necessarily take the same action in these areas as it did with Gap insurance, it wouldn’t be surprising if these products came under closer regulatory scrutiny.

Across these business lines, many of the individual providers have claims frequencies below 5%, making it hard to see how these policies are delivering fair value for their customers.

I would not be surprised to see some form of regulatory intervention in these areas over the coming months. It just remains to be seen how far-reaching this action will be if and when it materialises.