The FCA have announced that they will be conducting a market study into pricing practices in retail home and motor insurance. The announcement follows an initial piece of supervisory work, for which the results were announced on 31st October 2018.
The FCA have said that the market study will focus on 4 areas:
- the consumer outcomes from pricing practices
- the fairness of outcomes from pricing practices
- the impact of pricing practices on competition
- remedies to address any harm that the FCA finds
This is an issue that has attracted much media attention in recent times and it is no surprise to see the FCA conclude that a full market study is warranted. A full timetable for the study has been laid out, with initial feedback requested by 3rd December 2018 and an interim market study report outlining potential remedies due in Summer 2019. The FCA have said that they expect their final market study report to be issued by the end of 2019.
What does this mean for the Insurance Market?
With the work that the FCA have been doing to implement the Insurance Distribution Directive (IDD), this announcement should come as no huge surprise to insurers, MGAs and other organisations involved in the distribution of retail home and motor insurance products. We have previously discussed some of the key factors involved in the IDD in a series of articles:
- Insurance Distribution Directive Deep Dive 1: Product Governance
- Insurance Distribution Directive Deep Dive 2: Customers’ Information and IPIDs
- Insurance Distribution Directive Deep Dive 3: Customers’ Best Interests
The question the FCA are now grappling with is the extent to which it is reasonable for insurers to profit from the business they have written and whether that can be done in such a way that one set of customers might be treated differently from another set, where that decision is not based on a risk factor.
The FCA appear to be concerned to ensure that the widest possible consultation is carried out with the announcement they will be holding a live webinar at 11.30am on 8 November for insurance firms and intermediaries to explain what a market study involves and to help you navigate your way through one.
Whilst the FCA has acknowledged the industry’s ongoing collective efforts to address this issue, and has announced a further market study, the “Dear CEO” letter sends a clear signal that the FCA expects each firm to act now and be ready to explain their pricing strategy, and how they know it gives fair outcomes or what they are doing now to correct it.
If you have any questions about the actions your firm should take now to address the Dear CEO letter, or wish to discuss your thoughts on the forthcoming Market Study and the 3rd December feedback deadline, please get in touch with Kenneth Underhill or Jason Jones.
