REVEALED: The shocking state of insurer pricing behaviour unmasked by FCA

The FCA’s initial investigation into 18 insurance firms home pricing has unveiled a shocking state of affairs - and the regulator is now concerned insurers and intermediaries risk breaking the law. 

The regulator found a huge, and shocking, array of problems at the insurers within the sample who make up 40% of the home insurance market.

The over-arching problem was that a significant number of insurers and intermediaries were putting profits before people, with many having poor practices in protecting customer groups that include the most vulnerable. 

The only slight glimmer of light for insurance firms was that the FCA found they were not deliberately discriminating.  

Some of the intitial study’s most important findings include: 

* The current state of pricing behaviour around specific groups is so serious, the FCA is concerned insurers are at risk of breaking the Equality Act 2010 and the Rehabilitation of Offenders Act 1974 

* Three of the UK’s largest insurance firms had absolutely no pricing strategy or philosophy to protect customer groups, including the elderly, instead basing every pricing activity on making as much money as possible 

* Major insurers had documentation on pricing decisions and its affect on groups, such as vulnerable people, but the pricing teams were completely unaware of it

* Board and executive committees at many insurance firms came under fire for having no oversight on what was going on at ground level

* Many firms had a lack of clarity about who was ultimately responsible for the pricing related decisions DESPITE new regulations such as the Senior Insurance Mangers Regime 

* The terrible state of insurance firms’ IT legacy problems. This meant that long-standing customers renewing products were left on older systems. Meanwhile, new customers were using latest systems and were reaping the benefits. Old systems and new IT systems couldn’t connect to each because of the poor IT infrastructure.

Winners and losers - the customer

The FCA says the biggest losers, from their study, were: 

• People who are over 65 years old, those who pay monthly, those who auto-renew, those who have made previous claims and those who have buildings only insurance.
• Potential winners include a higher proportion of these may be found in the front book/newer cohorts of business. Examples of consumer groups who are potential winners from the scenario analysis with lower average margins and policy tenures include private renters with children, those with low credit scores, unemployed renters and those with contents only insurance.

BIBA and ABI guides on vulnderable customers were not used at firms in pricing decisions. It was instead left to contact centre staff. 

The FCA said: ”The greatest potential for harm we identified arose from the price differentiation relating to long term renewal consumers. This is particularly in those firms with larger books of older renewal business (including back book and legacy products).

”Our work showed that cohorts of consumers who have renewed their home insurance with their insurer for many years are on average paying prices significantly above the cost of provision.”

Firms have until December 3 to respond.