The FCA took its time crafting the foundations of its general insurance pricing review, however it expects insurance businesses to turn around rule changes on the double – surely it’s in nobody’s interest to rush such a pivotal market change?
By Editor Katie Scott
Despite insurance firms defining the FCA’s general insurance pricing review as a “welcome intervention”, the implementation timetable has been less applauded, however.
Last September, the FCA published its General insurance pricing practices market study report, which asked the insurance industry to deliver feedback on proposed remedies to tackle price walking in the home and motor markets – this is where long-standing customers are offered a less competitive renewal price than new customers.
This work was based on a two-year study conducted by the FCA.
As it stands, the industry is now waiting for the FCA to publish a policy statement responding to the feedback gathered – scheduled for quarter two of this year, the policy statement will also confirm which remedies are to be actioned.
The rub, however, is that insurers will then have just four short months to implement the approved remedy measures – a timescale that the ABI’s director general Huw Evans declared “a joke”.
Speaking at the ABI’s annual conference last month, Claudio Gienal, chief executive of AXA UK and Ireland, also identified the proposed implementation timeframe as a challenge, adding that firms simply wanted enough time to action the remedies properly, rather than having to pull together a rushed job full of shortcuts or loopholes on something that will undoubtedly have a massive impact on the industry and its customers.
Sabre chief executive Geoff Carter told me that he couldn’t emphasise enough how “significant” these pricing reforms are, referencing the broader affect they will have on the market.
It seems to me that the FCA spent years carefully laying the groundwork and preparing the foundations for this fundamental pricing change, to only then step on the accelerator in a final push of impatience once it has washed its hands of the initial rulemaking.
This won’t benefit anyone, and certainly not the customers the remedies are designed to help.
Hard work ahead
This point was addressed by Sheldon Mills, executive director of consumers and competition at the FCA, who spoke at the same ABI conference session as Gienal. He noted the concerns around the four-month implementation period and mysteriously added that the regulator would issue something soon.
Mills continued: “There’s quite a lot of work that we need to do in the industry to get around these fair value issues.
“I think the main thing when we do come with a set of final remedies will be that we will expect the industry, and it will be hard work, but we do need the industry to engage.”
In my mind, industry engagement is the least of the FCA’s concerns – Mills was preaching to the converted here in my opinion.
For example, mere minutes before, Gienal told session attendees: “Fair value for customers is absolutely at the forefront [of] what we do and try to achieve, so anything where the regulator steps in [to drive] transparency, clarity, good customer outcomes, will always have our full support.
“Overall, very supportive, it’s the right thing to do. Trust starts with transparency and clarity.”
He even raised how claims farming needs to be considered as part of the pricing equation and that “everyone who participates in the value chain needs to play his role”.
These thoughts were echoed by fellow session panellist Owen Morris, global chief underwriting and data officer at Aviva General Insurance.
He said: “I think it’s great the FCA has given clarity to that issue and I think now, it’s really just about working through how we make that work and how we make sure we get great customer outcomes.
“How do we make sure that we get equally a great level playing field where we can compete as equals to create those products for customers?
“We will definitely need to collaborate on implementation timing. Equally, post-implementation, a change of this size may impact different customer groups in different ways and we may want to work together to tweak things as we get experience in the first couple of years. It’s certainly a welcome intervention.”
Value creating trust
Although the industry and regulator may be at odds around the ‘how’ of implementing pricing reform, the ‘why’ is crystal clear – creating better customer outcomes and a fair value model will improve the public’s trust in insurance.
“The industry is at a bit of a crossroads in terms of trust. I think the industry can do better,” Mills said.
“One of the areas that we have been focused on has been around pricing models and that value component. And one of the aims there, for me, is we need to see more simplicity and transparency for consumers and hopefully that that leads into fairer outcomes.
“It means ensuring that the industry regularly and holistically assesses product governance and that senior managers are taking proper ownership of that. It means that in chains of intermediaries and distributors, that manufacturers in the insurance industry are actually taking their obligations to ensure product value and the right sort of governance throughout the whole distribution chain.”
Gienal also noted that communications with customers will be vital post-reforms, to ensure customers fully understand the pricing they are offered. “There are a lot of things that we as insurers need to do on our side in terms of the communication and how we go about it,” he added.
A remark from Morris, however, caught my interest.
He said: “I don’t think anyone I spoke to across the industry was particularly happy with renewal/new business pricing the way it was.”
Why, then, was something not done sooner?
As always, Evans presents the reasonable explanation: “I don’t think we could have done it any sooner. It always needed regulatory intervention because it would have been anti-competitive to get a load of insurers in a room to try and work this one out,” he said.
Despite its altruistic aims, there’s still a lot to consider around the pricing reforms. I wholehearted agree with Gienal when he described the initiative as a good starting point, however I also think this is just the beginning – customers’ behaviour change around this is likely to take a couple of years to bed in. We won’t really know the results until then.
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