FCA pricing report paves way for ‘exciting and innovative time’ within insurance

Following the FCA’s publication of its report on pricing practices within the home and motor insurance markets, data insight firm Consumer Intelligence’s chief executive Ian Hughes believes this creates “a really exciting and innovative time within this space” as “different people will have to innovate in different ways”.

On 22 September, the FCA published its General Insurance pricing practices market study report, which revealed statistics and proposed remedies around the practice of price walking, where new customers are offered lower, more competitive premiums than longstanding insurance customers.

During a webinar discussing the implications of the FCA’s report, Hughes emphasised that “not every single company is going to be affected in the same way”, meaning that insurers will need to take different approaches in order to adhere to the FCA’s proposals.

He said: “You’re going to see different implications in the home market than you are in the motor market, where the premiums are different. Not every single company is going to be affected in the same way – different people are going to be affected in different ways and I think we’re already beginning to see that in the way that people have responded in the market. It’s definitely a really exciting and innovative time within this space and different people will have to innovate in different ways.”

Fellow webinar panellist Mike Miskelly, insight analyst at Consumer Intelligence, also took this view. He added: “I think what we’re going to see here is varying moves depending on what kind of mix of business you have as an insurer or provider, how many long tenure customers you have, how much you rely on new business as a way to grow your book.

“I think we’ll see a different approach from different firms across the market, I don’t think it’s going to be a uniform approach by any stretch.”

Miskelly further thinks the home insurance sector will have more work to do here than the motor market. Quoting Consumer Intelligence data, Miskelly said in the last 12 months to July, home insurance premiums have increased by 3%, with a typical contents and buildings policy now costing £150. In the 12 months to August, motor insurance premiums have risen by 2%, with the average premium standing at £902.

Fair value

One facet of the FCA’s report that Hughes deemed as “critical” is the focus on fair value. He explained: “‘Fair value’ is a word that’s appeared out of nowhere over the last few weeks. It’s so crucial, it’s so important. It is a totally new concept in this market.”

Michael Sicsic, managing director at Sicsic Advisory, also flagged the importance of fair value for webinar attendees. “By focusing on fair value, focusing on product governance, by focusing not only on home and motor but all the various products, it has really redefined value and reshaping potential insurance. There is a hope that the focus would be more on product, customer service and overall engagement rather than just price,” he added.

The importance of fair value is clearly demonstrated in the FCA’s stated anti-avoidance measures, which includes the requirement for firms to submit an annual compliance statement, where the business’s senior manager has to not only confirm compliance of the implementation of price walking remedies, but also note the outcome of these steps too. Sicsic said this is an unusual move from the regulator and described these metrics as “interesting”.

However, Hughes added that “the FCA has not said that insurance companies cannot change price”, explaining that consumers will still most likely shop around and use price comparison websites, not only if their premium has risen, but also if it is due to decrease, for example if the policyholder has reached an age threshold.

“I think shopping around will still happen. There is evolution and I think the market will evolve. I think we’ve got an exciting time of evolution ahead of us,” he said.

The panellists added that insurers are going to need to think more closely around their business operations and what makes them unique in order to stand out from rivals in a market that will now be less driven by price – even if Consumer Intelligence data shows that this is still the key consideration for insurance customers.

For example, the panellists believe that factors such as brand, quality of service and claims payouts will now become more important. They cited Admiral as a good example, noting the numerous benefits the firm has reaped since providing premium rebates to motor customers when policyholders were not driving their cars as much during the strict Covid-19 lockdown period.

Hughes explained: “It’s going to force insurers to think about what a unique selling proposition is, what a unique selling point is? What do they do, what’s their position? And it might be that you think you’ve got better data so you can make better underwriting decisions, or you can pick off part of the market because you’ve got a telematics product.

“Certainly, just sitting in the centre of the market saying ‘we’re just going to hoover up a lot of business and we’ll cycle through it at renewal because we’ll put low introductory discounts in and we’ll just hoover up business like that and just hold on’, that’s not going to work in the future.

”There’s a real need to think about what am I doing, what is my purpose in my business and how is that different from other people? It’s definitely a question that insurers have to start asking themselves.”

Key take aways

The panellists concluded the webinar by outlining their key take away messages for attendees. For Miskelly, this was around sector innovation.

He said: “As that emphasis drifts a little bit from predominantly being on price to also focusing on overall offering, whether it’s product, service, user experience, I think we’ll have to see firms step up their game a little bit on innovation.

”I think that applies all the way through the supply chain, PCWs, brokers and insurers. Innovation will be key, [insurers] can’t just price your way out of this. I think you need to look at product and what you can offer to consumers that they really see as a benefit to them above and beyond price.”

Sicsic, on the other hand, discussed how broad the FCA’s proposals were and how much it actually covers, including premium finance and add-ons.

Hughes, however, wanted to emphasise how personal the new rules are.

He concluded: “Before, this could be a business-related thing, but the FCA has made it very clear that this falls under the Senior Manager Conduct Regime. You can’t hide behind the company – this is about you and your personal conduct and your personal moral code and ethics in terms of the way that you’re working with customers and the way you work within the business, and I feel like that brings a very different reflection in the way that people need to think about their role in what their company does in innovating in the future and how that works for them.”