Renewal rules require brokers to re-examine proposition and go ‘back to the future’

The FCA’s impending general insurance pricing reform creates a “back to the future” scenario for brokers, where they must “remember the original role they were created to deliver” and focus on offering “services that cannot be provided by the insurer” – this is particularly pertinent considering some carriers are locked in a desperate fight for new business before the rule change takes hold on 1 January 2022.

Following its September 2020 General Insurance pricing practices market study report, the FCA has sought to outlaw the long-held industry practice of price walking, which typically involves loading renewal premiums to offset the need to reduce the cost of cover to attract new policyholders.

As these new pricing rules don’t come into force until the end of the year, underwriters have been using every available day before the regulations change to engage in an intense competition for new business, to bolster their market share in anticipation that pricing will have to rise in 2022.

Matt Munro, chief executive of broker IGO4, said: “The market is as competitive as I have ever known it at present. In some ways, it is a perfect storm.

“As a broker, we specialise in telematics and the used car market. Obviously, Covid has had an impact.

“We saw a drop in [the] number of car sales during the lockdown and when demand started to increase, there was a significant shortage of supply, so the level of new quotes had been below what we would usually expect.

“This has only added [to] the increase in competition for business we have witnessed in the past five to six months as the insurers prepared for the new rules in renewals to come into force.”

Munro added that he was positive about the future of the motor market, however – especially the opportunities the regulation changes could reap for brokers.

“As a company, we have always taken a deep dive approach to understand our clients and we have always priced the risk correctly, which at times has necessitated a higher premium.

“The new rules will see premiums increase and we believe we will be more competitive. The service we deliver to the policyholder by understanding their risks and their needs is always an added value, but price remains the biggest buying decision, so a more level playing field will benefit a broker like ourselves.

“Our insurance partners know we have analysed the risk before we look to place it. We are taking a positive view of the coming year.”

In terms of broader trends following the elimination of price walking, Munro noted that “the market is expecting that prices will rise by between 10% to 15%, but ideally renewal pricing will see a fall as the balance is struck”.

Plus, “price comparison sites will still be used, but there will be a change in emphasis over and above price.”

Service-driven role

Steve Molloy, director of commercial sales at accident specialist AX, said the new pricing rules will enable brokers to return to their core values.

“A lot of what we do with the insurers is around claims, but for the brokers, they should be looking to go back to the future,” he said.

“By that I mean they need to remember the original role they were created to deliver. They will need to differentiate and deliver services that cannot be provided by the insurer.

“The products have become more commoditised and with it, brokers need to step back and examine the value they can provide for the client.

“There is a huge focus [on] the product rather than the services they can provide. They should look to their Trustpilot ratings on why clients value what they do. It is likely they will need to prove the value they provide to the client as pricing becomes less of an issue.”

Molloy added: “[Brokers] will need to be agile and that agility will need to be service-related.”

Although brokers typically strive to deliver a service-centric proposition for their clients, this relationship-driven approach becomes even more important in light of the FCA’s restrictions on differential pricing, as brokers will have to find new ways to deliver value to their clients.

Molloy continued: “They may well need to look at areas where they can add advice which [goes] over and above the insurance policy.

“For instance, if the policyholder’s car is written off, they may well look at how they can help support them to find a replacement vehicle.

“There is also the opportunity to support [policyholders] when it comes to a transition to electronic vehicles. The same can be said with the drive towards greater environmental, social and governance (ESG).

“[Brokers] have a real opportunity to deliver thought leadership on the issues around ESG, which will be hugely appreciated and can only strengthen the relationship.”

Telematics attraction

For Mike Brockman, chief executive of telematics provider ThingCo, the FCA’s pricing rules are likely to make the use of telematics a more attractive proposition.

He said the costs around the systems required for the use of telematics will now be offset by the likely rise in premiums. However, telematics may also provide insurers with the opportunity to reward careful drivers at renewal.

“While [insurers] will not be able to price renewals at a higher level [than] new business, the use of telematics will increase in value around the risk selection and the ability to enhance pricing accuracy,” he explained.

“It may well be that 85% of drivers will be happy to have their driving habits analysed and the 15% who are not are likely not the risks an insurer would look to assume.”

Brockman added: “The days when insurers were seeking to be at the top of the screen on the comparison sites [based] on pure price are set to come to an end, but whole price will remain a key buying consideration.

“More and more drivers, and particularly younger drivers, are likely to consider telematic systems.

“For insurers, the use of telematics will encourage better driving behaviour and reduce risk, which will allow greater flexibility around pricing.”