FCA warns sector over ensuring value for consumers

The FCA has written to insurance industry chief executives to warn that they should ensure customers are protected from unecessary costs associated with products, add-ons or unfair penalities as financial pressures mount.

Where poor practice is found, the FCA has stated it will quickly intervene to protect customers from harm.

The regulator has made this move out of concern that underinsurance may become an issue as customers seek savings by cutting back on cover.

Customers are facing record levels of inflation and energy costs. The Office for National Statistics reported in August 2022 that the Consumer Prices Index had risen by 10.1% in the 12 months to July 2022 – this is the first time this value has breached 10% in 40 years.

Despite the UK government introducing a two-year Energy Price Guarantee for households earlier this month (8 September 2022), the regulator fears that some consumers will cut back on insurance cover to save money.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Customers who are struggling with their finances should contact their providers as soon as possible. We encourage customers to continue to shop around to find the best deal.

“Firms should not unfairly penalise them for any payment difficulties but instead work with them to find solutions.

“We have a thriving and efficient insurance sector and we want people getting the cover they need at a cost they can afford so both business and customers benefit.”

Snowball effect

As a result of the financial pressure, the FCA further noted that customers – including businesses – are more likely to need to pay for their insurance monthly via premium finance.

Customers may also be affected by general interest rate rises and the economic situation means there is higher likelihood of some not being able to make payments.

If difficulty paying a bill arises, the FCA said this could impact customers’ physical and mental health, which could exacerbate any financial issues.

To help customers, the FCA suggested the following methods for insurance firms:

• Reassess your customers’ needs
• Consider whether there are other products that better meet your customers’ needs
• Provide clear information to consumers about the additional cost of premium finance
• Work with customers to avoid the need to cancel necessary cover
• Waive fees associated with adjusting a customer’s policy in line with reassessments
• Consider whether cancellation fees should be removed for customers experiencing financial difficulties