Unfair pricing and unrated insurers vex Broker50

The shocking findings of unfair policy pricing and the FCA’s ongoing study into the matter were hot topics at the annual Insurance Times Broker50 event.

Leaders of the top insurance brokers in the country gathered at the classy Groucho Club in Soho for the event where they quizzed representatives of the FCA, Biba and the ABI on this and a range of other issues.

Since Citizens Advice reignited the debate around dual pricing with its super-complaint against five financial sectors, including home insurance, in September, the matter hasn’t been far from the lips of insurers and brokers alike.

The FCA’s subsequent revelations into the full extent of the problem exposed an array of problems, including that three major home insurers had no consideration of protecting vulnerable customers in their pricing strategy at all – instead making every decision based on what would generate the most profit.

The terms of a further study into unfair pricing in motor and home insurance has been announced by the FCA to determine what action will need to be taken to stamp out the practice, which includes both dual pricing and discriminatory pricing.

And brokers at the event expressed relief that the FCA was finally taking action on this long-acknowledged problem area.

Speaking to the FCA representative, brokers agreed that the issue needed regulatory action to solve because no insurer wants to be the one to step out and take the hit on profit.

By enforcing new rules on what is a fair pricing practice, brokers were hopeful the study could help.

One broker asked what the FCA hoped to achieve through the study – whether it was simply to cut out the extreme examples of customers losing out on thousands, or whether to eliminate the practice of discounting new business.

The FCA representative explained that they do not thinking pricing discrimination is bad, and said it is part of a healthy sector. The study was said to be about determining whether issues discovered in the market were fixable, or whether a level of intervention was required.

During a presentation delivered at the event it was further explained that the that the study would look to answer this question, but that it was complicated because “what might have been acceptable pricing practice 10 years ago is no longer acceptable today”.

A key theme from the FCA at the event was highlighting to brokers their duty to ensure their customers are treated fairly by the insurer.

It was recommended brokers take greater steps to discover the rate that insurers will pay out on claims, and the number of complaints upheld against insurers from the financial ombudsman.

Discussion also touched on the issue of whether brokers should include unrated foreign insurers on their panels.

Brokers who avoid unrated insurers commented that they felt it was unfair that all had the carry the cost when an unrated insurer failed. And they said it created an unfair competitive environment that brokers could choose to deal with unrated carriers, and yet not face any serious consequences if that carrier fails.

One broker commented that an upside of Brexit might have been increased passporting controls to make it more difficult for brokers to include unrated insurers on their panels.

The FCA said rather than focus on whether the insurer is unrated or not, the key issue was whether it well-capitalised. On this, he said it was important brokers carried out financial checks and looked up the solvency history of the firm.

The representative added that the FCA understood this was a significant issue for brokers and that it was investigating the matter.

The FCA had previously suggested putting a levy on brokers using poorly capitalised insurers, but the FCA explained at the event that this plan was deemed unworkable due to the difficultly in precisely defining what is “poorly capitalised”. However, they added that such a plan was “not completely off the table”.

Representatives of the ABI and Biba were also present at the event and delivered talks on how their jointly released action points earlier in the year could help tackle dual pricing. Both bodies also backed the FCA action being taken to look into unfair pricing.

It was commented that, unlike other sectors, the insurance industry had not explored being more open with customers that discounted prices were introductory-only, and that prices would increase in following years.

It was speculated that pricing controls may be a logical outcome from the FCA pricing study.

Some brokers feared that it could start to become like a nanny state if this were to happen, where every customer is treated as a vulnerable customer.

It prompted calls for a more transparent distribution model that lays out where the price of the premium goes and what percentage of it is profit.

But there was agreement that the issue presented a huge challenge over how the FCA could use regulations to help inert customers.

And the general sentiment in the room was that there is a fine balance that the FCA will need to strike in its study between the customers responsibility to shop around and seek the best deals, and where the regulator should step in to act against bad pricing practice.