We have published the interim report of our general insurance pricing practices market study. This is part of a package of our work to make general insurance markets work well for consumers.
General insurance products are important for consumers and provide them with protection when things go wrong, for example if they have a car accident or their house is damaged.
The general insurance sector has been an area of focus for us over recent years. For example, we have introduced new rules implementing the Insurance Distribution Directive and to increase transparency and engagement at insurance renewal. We also carried out a thematic review showing that consumers who stayed with the same provider for a long time paid on average significantly more for home insurance than newer consumers.
We launched this market study in October 2018 following our thematic review to understand whether pricing practices in home and motor insurance support effective competition and lead to good consumer outcomes. We were concerned about the potential harm to consumers from pricing practices.
Stakeholders have also raised concerns about outcomes from general insurance pricing practices. In September 2018, Citizens Advice made a super-complaint about loyalty pricing to the Competition and Markets Authority (CMA). Home insurance was 1 of 5 markets included in the super-complaint. The CMA published its response in December 2018. It recommended that we look at ways to tackle ‘price walking’ and other harmful business practices in home insurance.
We found that the home and motor insurance markets are not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around 6 million consumers.
Our other key findings are:
Industry has acknowledged the need to address concerns about pricing practices and has been taking some steps to do this. However, we think that our intervention is also required. In the immediate term, we continue working to address the problems uncovered including:
We are also considering a range of industry wide measures to reform these markets so they work well for consumers in the future. Our interim market study report sets out these remedies.
We are grateful for feedback received from industry, consumer organisations and individuals to our interim report. We are considering this feedback carefully, and continuing our assessment of potential remedies to address the harm highlighted in our interim report. It is complex to identify remedies that both address the harm we have identified and achieve our wider aim of ensuring that competition works well and delivers long term good value for all consumers in future. We are completing detailed analysis of these issues.
We have also considered all the information received regarding firms’ pricing practices and the resultant consumer outcomes from a supervisory perspective. This includes the information obtained through our follow-up work with a sample of firms further to our Dear CEO letter, which focused on pricing governance, differential pricing and discriminatory pricing. This work found that many firms still have further work to do to meet our expectations regarding their pricing practices and the governance in place around this. Where appropriate we have sought to intervene using the full range of our regulatory tools. We will continue to take a robust supervisory approach to address concerns about firms’ pricing practices.
It is important that customers purchase good value general insurance products. Value is driven by price and the quality of the product. Consumers should be able to trust that firms will provide them with a quality product that delivers on reasonable expectations of performance. We are carrying out work in several areas to help consumers purchase good value general insurance products.
Other rules and guidance on which we have consulted recently include:
Evaluations of our previous actions are important for future decision making because they help us understand and learn what interventions work and do not work, and why this might be.
For example, we previously introduced rules to increase transparency and engagement at renewal in general insurance markets. These rules aimed to encourage some consumers to check their insurance cover and pricing and shop around for the best deal at each renewal. We have published an evaluation of this intervention alongside our market study interim report. Our central estimate of consumer savings is £185m per year due to this intervention.