MS18/1: General insurance pricing practices market study

Terms of reference
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Interim report
Final Report

We have published the final findings of our general insurance pricing practices market study. As part of this, we set out a package of remedies to address the concerns identified.

Read the Final Report (MS18.1.3) (PDF)

Read CP20/19 (PDF)

Read PS21/05 (PDF)

Addendum December 2020 

We have identified an error in the code used to estimate the impact of the pricing remedy that leads to changes in estimated impacts of the remedy. These changes relate to both the estimated consumer savings and level of switching under the remedies. The estimated benefits to consumers over 10 years increase from £3.7bn to £4.2bn. We have updated Annex 2 of the market study and one paragraph of the final report to reflect the corrected code. We have also made consequential changes to the consultation paper that accompanied the market study. Changes made in the documents have been highlighted.

Context for our work on general insurance

General insurance products are important for consumers and give them protection when things go wrong, for example if they have a car accident or their house is damaged.

We have been focusing on the general insurance sector over recent years. In October 2018 we carried out a thematic review showing that consumers who stayed with their provider for a long time generally paid significantly more for home insurance than newer consumers. Following this, we issued a Dear CEO letter and carried out follow up supervision to ensure that firms improve the governance, control and oversight of their pricing practices. 

Others 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 one of 5 markets included in the super-complaint.

Our market study

In October 2018, we published the terms of reference for our market study into general insurance pricing practices. We launched the market study to understand whether pricing practices in home and motor insurance support effective competition and lead to good consumer outcomes.

We published our interim report in October 2019, which set out our interim findings. We found that 6 million policy holders paid high prices in 2018 – if they paid the average for their actual risk they would have saved £1.2 billion.

We considered the consultation feedback to the interim report and carried out further work. We confirmed the key findings in our final report in September 2020.

Our final findings

Firms use complex techniques to identify consumers who are more likely to renew with them. Firms then increase prices to these customers at renewal each year, resulting in some consumers paying very high prices. Many of these consumers are unaware of this, mistakenly believing that their provider is offering them a competitive price at renewal. In addition, some firms use practices that can discourage consumers from shopping around, including by making it more difficult to cancel automatic renewal. And, firms do not always offer regular switchers their lowest prices.

Tackling the harm we have identified

We proposed a package of remedies to stop firms systematically increasing prices in home and motor insurance for loyal customers in the future, as well as ensuring that firms in the general insurance market focus on providing fair value to all their customers, and increasing trust in general insurance markets. Our final rules are set out in the Policy Statement published in May 2021. 

We expect our remedies to improve competition, with consumers being able to rely on the price they pay when they take out a new insurance policy being more reflective of what they will pay in future. This should lead to lower overall costs for supplying insurance, more intense competition and ultimately lower average prices paid by consumers.

Improving information about the value of general insurance products

Alongside the final report, we published final rules on the reporting and publication of value measures data and value measures product governance rules. This data will provide an important indicator on how insurance products are performing. Making this information available to firms, as well as the media and consumer groups, should help deliver better outcomes in the market. The data will also give us an additional tool to help supervise firms.

Next steps

We published the final report in September 2020 alongside a consultation paper to further explain our final findings and proposed remedies.

Following consultation, we published a Policy Statement setting out the final rules in May 2021.

Annexes to the Final Report

Interim Report

In October 2019, we we published our interim report which sets out our views based on our work to date on whether pricing practices for home and motor insurance lead to consumer harm, who is affected, and, if required, what action is needed to improve the market.

Show interim report (PDF)

Annexes to interim report:

Annex 1: Consumer outcomes technical annex
Annex 2: Business models and Financial analysis technical annex
Annex 3: International comparisons
Annex 4: Consumer research
Annex 5: Consumer research technical report
Annex 6: Future trends in general insurance pricing research report

Terms of Reference 

In October 2018, we launched this market study to understand whether pricing practices in home and motor insurance support effective competition and lead to good consumer outcomes

Show terms of reference (PDF)

Page updates

: Publication added Updated version of the Consultation Paper.
: Information added Update on publication date of final market study report

04/10/2019: Information added Interim report (MS18/1.2) published