In this Feedback Statement we summarise the responses we have received to the options set out in our June 2015 Discussion Paper on general insurance add-ons, and outline next steps.
Why are we issuing this Feedback Statement?
In July 2014 we published the findings from our general insurance (GI) add-on products market study. We found that competition was not working well for consumers in add-on markets. There was little competitive pressure on firms because add-on buyers were less likely to shop around and were less price-aware than they would be when choosing a stand-alone product.
We identified poor value in both add-on and some stand-alone products sold by firms, which we measured by claims ratios. For example, for personal accident and GAP add-ons, only around 10% of retail premiums were paid out in claims. Stand-alone personal accident products had an average claims ratio of 15%. In some cases these low claims ratios persisted over a number of years, indicating that firms were not under pressure to improve value. We also highlighted that the lack of a commonly available measure of value to assist market participants with value judgements heightened these issues.
To address these concerns, our market study final report proposed the publication of claims ratios as a market transparency measure. In June 2015 our Discussion Paper (DP15/4: Developing general insurance add-ons market study – remedies: value measures) explored a number of options for introducing and publishing value measures in GI markets, including the claims ratio. We expect that the publication of value measures data will incentivise firms to improve product value.
In this Feedback Statement we summarise the responses we have received to the options set out in the Discussion Paper and outline next steps.
FS16/1: Feedback Statement on DP15/4 – general insurance value measures [PDF]
What are the next steps?
Having considered the feedback to the Discussion Paper, we have decided to take forward a scorecard as our preferred option for presenting measures of value. The scorecard will include claims frequencies, claims acceptance rates and average claims payouts, potentially with the inclusion of an average premium metric. We still prefer publication as a market transparency remedy, rather than point-of-sale disclosure to consumers. We consider the scorecard could give users a wider breadth of information about GI products sold to consumers, while reducing some of the risks and costs associated with the claims ratio.
However, rather than consult immediately on introducing a scorecard approach for a broad scope of GI products, we have decided to run a pilot covering a small number of products. This will enable us to obtain further evidence of the remedy effectiveness and costs ahead of any potential consultation. We intend to launch a pilot of the scorecard in the summer, on a limited number of products. We envisage that the pilot will cover two one-year periods (with two data collection points one year apart) and data will be published on the FCA website.
We will continue to engage with stakeholders on the pilot design ahead of its launch.