Saga becomes the first industry player to take a huge hit from the FCA crackdown on renewal pricing
Saga today crashed to £134.6m loss and vowed a gigantic u-turn on its whole renewals strategy amid the FCA crackdown on dual pricing.
Saga took a £310m insurance goodwill writedown for the Jan 2019 year-end results - with its share price in freefall today plummeting 32%.
It is promising a three-year fixed premium product on home and motor.
Furthermore, it will pivot away from broking and the intense churn of price comparison sites, instead going to its own direct channel where it can offer value as solutions to its renewals crisis.
The insurance group has been hit by the perfect storm of having to change is renewal strategy, intense competitive pressure on home and motor, and lower reserve releases.
And in a statement that is likely to alarm rival insurers and brokers, Saga said: ”We also anticipate a significant industry response to the regulatory focus on renewal pricing.”
Amid the FCA finding shocking behaviour on renewal pricing and potentially looking at price intervention, a number of insurers are reacting to dual pricing now, with RSA launching cashback and Aviva launching a new strategy.
U-turn on renewal strategy
Saga said: ”The first major step will be the launch of a highly differentiated home and motor insurance product that guarantees the same premium for three years providing there are no claims in the period, and that there is no change to insurance premium tax.
”This will only be available to customers who come to us direct. We have been piloting this since November and have sold over 5,000 policies to new customers.
”It has proved to be extremely popular: over 60% of those offered it have opted for the fixed price insurance. We are also changing our approach to renewal pricing.
”This is in recognition of the fact that the industry is going to go through a period of major change. We also want to encourage our customers to see more of a benefit in remaining with Saga for the long term.
”The change in strategy is expected to create a platform for future growth in policies and profits.
”In the near term, however, the combination of margin pressures, the change in approach to renewal pricing and our investment in new propositions will lead to a decline in broking profitability compared to 2018/19.”
Saga will also cut its dividend, with a final dividend of 1p per share and a full year dividend of 4p. This comapares to 6p and 9p respectively the previous year.
It forecast underlying profit for 2019-20 of between £105m and £120m, down from £180.3m in its latest results.
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