Posted on 9th May 2022 at 14:27
Financial Conduct Authority (FCA) Fair Pricing and Pricing Practices.
Why the need for change?
The FCA has been concerned about pricing and renewal practices in the general insurance market for some time. In 2018 it had published an in-depth analysis on financial implications, relating to household and motor insurance for consumers.
This was followed by a more detailed investigation and in September 2020, the FCA published its final report into general insurance pricing practices. The report focused on an exercise that looked at the potential for consumer harm in the home and motor insurance markets, caused by pricing practices.
The FCA had been concerned about and found extensive evidence of, "price walking", a practice where firms increase the price of insurance for returning customers. It found that firms used complex techniques to identify those customers likely to renew and then increased the price. This resulted in some loyal customers paying very high prices, obviously not a good outcome for the customer. It said these customers would be unaware that their renewal price might not be competitive and so, would not understand there could be a benefit to shopping around. It also found firms employing practices that would discourage consumers from shopping around. All in all, these practices distort competition and lead to higher costs for everyone.
As a result of their findings, the FCA proposed a package of remedies comprising a pricing intervention for the home and motor insurance markets, together with measures that would aim to ensure firms offer fair value to all customers in the future. It wanted to encourage effective and innovative competition, with transparency for consumers and no barriers to their switching if they find a better deal.
To implement the pricing remedy, the FCA proposed that home and motor insurers must offer customers a renewal price, no higher than a price would be for a new customer using the same channel. This came into effect in January 2022.
The FCA recognised that firms may change the way they price as a result of this remedy and proposed enhanced product governance rules, that would help to ensure pricing practices work to deliver good outcomes to all consumers.
The FCA also proposed measures that would stop auto-renewal being used as a barrier to switching. Some online companies signed customers up to auto renew by payment card and customers needed to contact their call centres to disable this service, or lapse a policy which can be time consuming and complicated.
Your local broker
As a broker, Hedon Insurance has always been able to shop around on behalf of our customers, prior to the renewal date. This helps us to offer the best price available to us based on the cover levels required. At Hedon Insurance we are easy to contact. Our friendly and helpful Insurance Advisors are available via; phone, email, social media, website and live chat. There are no barriers to getting in touch to discuss your insurance requirements.
Overall, we are pleased to see these changes come into place, making the market fair for all.
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