MS18/1: General insurance pricing practices market study

Terms of reference
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Interim report
October 2019
Final report
December 2019

We have published the terms of reference for our general insurance pricing practices market study.

Show MS18/1.1 terms of reference (PDF)

As part of the FCA’s 2018/2019 Business Plan we said we would conclude a piece of supervisory work on general insurance pricing practices.

We have published the results of our supervisory work which suggests that people who stay with their home insurance provider for a long time pay significantly more than newer customers. This is even though the costs and risks of providing both groups with home insurance may be the same. We are concerned about the potential harm this can cause to long-standing consumers, particularly those who are vulnerable.

Following this initial work we have decided that a package of measures is necessary, including:

  • A market study on general insurance pricing practices
  • Addressing conduct by firms
  • A wider discussion paper on fairness of pricing in financial services
  • Evaluating our previous actions on general insurance pricing

Our goal is to ensure that retail general insurance markets deliver competitive and fair prices for consumers.

We are aware that the general insurance industry is taking steps to address concerns about pricing practices. For example, in May 2018, the Association of British Insurers and British Insurance Brokers’ Association published Guiding Principles and Action Points for General Insurance Pricing. The aim was to act on excessive differences between premiums charged to new customers and those renewing. We expect the general insurance industry to continue the work underway while we conduct our programme of work. We will take into account any improvements made when considering potential remedies that may be required to make the market work well for consumers.

General insurance pricing practices have attracted much public interest and debate. This includes a Citizens Advice super-complaint to the Competition and Markets Authority (CMA) about excessive prices for disengaged customers. We are working closely with the CMA as it investigates the super-complaint.

Market study on general insurance pricing practices

Following our supervisory work on home insurance pricing practices, we concluded that a market study into retail home and motor insurance pricing practices was necessary. Principally, the market study will deepen our understanding of the following areas:

  • Consumer outcomes from pricing practices and what drives this
  • The fairness of pricing practices
  • The impact of pricing practices on competition

We will consider all potential remedies that may be required to make the market work well for consumers.

We hosted a webinar on 8 November for insurance firms and intermediaries to explain what a market study involves and to help you navigate your way through one. The webinar is available to watch on-demand.

Discussion paper on fairness of pricing in financial services

Questions about the fairness of pricing arise across financial services markets. Assessing whether pricing practices are fair, and the potential harms, involves considering a range of factors such as how many consumers are affected, their characteristics and how much they are affected. It also involves considering the nature of pricing practices and the behaviour of firms. There are sometimes difficult trade-offs between those who benefit and those who lose out, especially where vulnerable consumers fall into both groups.

Alongside launching the market study into home and motor insurance pricing practices, we have published a discussion paper on fair pricing in financial services markets. The discussion paper sets out our approach to considering fairness of pricing in general. We want to hear views from stakeholders to inform the judgment of when pricing is unfair in financial services markets. These views will be important for informing our market study.

Evaluating our previous actions on general insurance pricing

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. 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 are evaluating the impact of these rules and this will inform our consideration of potential remedies in the market study.

Addressing conduct by firms

We expect firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing. We also expect that firms’ communications with their customers, including in relation to initial pricing and pricing at renewal, should be clear, fair and not misleading. Firms should also take reasonable care to organise and control their affairs responsibly and effectively so that the governance, control and oversight of their pricing practices are appropriate.

However, we are concerned that firms have not always met our expectations. As a result, we are undertaking further work to address our concerns. This includes looking at renewal communications some firms have sent to their customers and considering the extent to which these may not always have been clear and not misleading. We are also engaging with firms about governance, control and oversight of pricing practices and have issued a letter to CEOs setting out our expectations. We have also identified potential non-compliance by some firms with our rules on transparency at renewal.

Where we have concerns about conduct by firms, we are exploring all options to address this using the full range of our powers.

Next steps

We would welcome any views and evidence on the questions posed in the terms of reference for our market study on home and motor insurance pricing by 3 December 2018. We plan to publish our interim market study report, where appropriate with discussion of potential remedies, in October 2019. We aim to publish our final market study report by the end of 2019.

We welcome any views on the questions in our discussion paper on fair pricing in financial services by 31 January 2019.

In addition to our work programme on general insurance, we are continuing our work looking at the treatment of longstanding customers in cash savings and mortgages. This includes a cash savings market study which reported in 2015, a discussion paper in July 2018 on price discrimination in the cash savings market, and a mortgages market study launched in December 2016 which published its interim report in May 2018.

Following publication of our Approach to Consumers in July 2018, we plan to consult in early 2019 on guidance for firms on the identification and treatment of vulnerable consumers. This is to provide clarity on our expectations of firms and ensure good outcomes for consumers, particularly vulnerable consumers. We also launched a debate in July 2018 on a duty of care and potential alternative approaches.