This report sets out the key findings of our thematic work on the pricing practices of household insurance firms. It then details our expectations of firms and our next steps.
Who should read this
Our findings will primarily be of interest to retail general insurance firms who are involved in insurance pricing activities. However, our findings and expectations in relation to pricing governance and controls and the impact of the implementation of the Insurance Distribution Directive are relevant to all insurance firms involved in insurance pricing activities and the senior managers governing these firms. Consumer groups as well as consumers purchasing household insurance may also find the report of interest.
What our scope was
We focused our work on home insurance pricing practices as we believed that this market would provide a good illustration of the range of customer outcomes arising from current pricing practices. The firms included in our review enabled us to consider a broadly representative sample of insurers and intermediaries with different types of business models.
What we found
We identified the following issues relating to firms’ current pricing practices:
- Firms failing to have appropriate and effective strategies, governance, control and oversight of their pricing practices and activities, such that they are unable to reliably assess and evidence whether they are treating their customers fairly.
- Differential pricing leading to some identifiable groups of consumers paying significantly higher prices than other identifiable groups of consumers with similar risk and cost to serve characteristics.
- The risk of discriminating against consumers through using rating factors in pricing based (directly or indirectly) on data (including third party data) relating to or derived from protected characteristics.
Our expectations of firms
We regard pricing as one of the most significant business activities for general insurance and for those intermediaries undertaking this activity, with the potential to cause significant harm to consumers. We expect all firms to comply with FCA rules in overseeing and carrying out pricing activities, and to take reasonable care to establish and maintain such systems and controls as are appropriate to enable them to do so.
We will use our supervisory powers to require firms to tackle evidence of harm and expect firms to take immediate steps where necessary to address the issues identified through our diagnostic work and included here in this report.
We are writing to the CEOs of insurance firms involved in pricing activities to set out our expectations of them and their firms.
We will conduct a market study to identify issues at the level of the market as a whole and design remedies where appropriate. Alongside the market study, we will initiate a public debate on the broader issue of fair pricing and the related possible harms within financial services markets.