General insurance pricing practices market study
     Feedback to CP20/19 and final rules
     Policy Statement
     PS21/5
     May 2021
             PS21/5     Financial Conduct Authority
                        Feedback to CP20/19 and final rules
            This relates to                                   Contents
             Consultation Paper 20/19                         1   Summary                                                      3
             which is available on our website at             2   The wider context                                            9
             www.fca.org.uk/publications                      3   The pricing remedy                                         14
             Email:                                           4   Product governance                                         46
             GIPricingPractices@fca.org.uk                    5   Cancelling auto‑renewing policies                          63
             Or in writing to:                                6   Reporting requirements                                     70
             General insurance policy team
             Financial Conduct Authority                      7   Cost benefit analysis                                      95
             12 Endeavour Square
             London E20 1JN                                   Annex 1  
                                                              List of non‑confidential respondents                          109
                                                              Annex 2  
                                                              Abbreviations used in this paper                              112
                                                              Appendix 1  
                                                              Made rules (legal instrument)
                                                                25 June  2021 – We have updated the implementation 
                                                                date of some of our rules relating to premium finance 
                                                                disclosure (ICOBS 6A.5.2R and 6A.5.3R) which will now 
                                                                come into effect on 1 January 2022, instead of 1 October 
                                                                2021.  Please refer to our Handbook Instrument  Annex B 
                                                                on page 4.
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             2
             PS21/5     Financial Conduct Authority
             Chapter 1  Feedback to CP20/19 and final rules
             1        Summary
             1.1       Our general insurance pricing practices market study found that the home and motor 
                       insurance markets are not working well for all consumers. While many people shop 
                       around, many loyal customers are not getting good value. We found that 6 million 
                       policy holders paid high prices in 2018 – if they paid the average for their risk they would 
                       have saved £1.2bn.
             1.2       In September 2020, we published a consultation paper setting out a proposed package 
                       of remedies. In this paper, we summarise the feedback received in the consultation and 
                       introduce new rules to address the harms we identified.
                       Who this affects
             1.3       This will affect:
                       •   general insurers and intermediaries
                       •   life assurers and intermediaries selling pure protection business
                       •   trade bodies representing these firms
                       •   consumers and consumer organisations
             1.4       In this Policy Statement we generally use the terms ‘customer’ and ‘consumer’ in line 
                       with the application of the rules; however, sometimes context dictates that we use the 
                       terms in their non‑technical sense. Please see the Handbook text for the application of 
                       the rules.
                       The wider context of this Policy Statement
                       The findings from our market study
             1.5       General insurance products give customers protection when things go wrong, for 
                       example if they have a car accident or their house is damaged. It is important that the 
                       general insurance sector works well for customers.
             1.6       In 2018, we published TR18/4: Pricing practices in the retail general insurance sector: 
                       Household insurance. This identified the issues relating to firms’ pricing practices that 
                       presented the most potential for significant harm and poor outcomes for consumers. 
                       We conducted the general insurance pricing practices market study to investigate 
                       these concerns in more detail.
             1.7       We published the market study final report in September 2020 which provides more 
                       discussion on the harm identified. We found that firms use complex and opaque 
                       pricing techniques for home and motor insurance to identify customers who are more 
                       likely to renew with them. Firms then increase prices for these customers each year at 
                       renewal, in a process known as ‘price walking’. This results in some customers paying 
                       high prices relative to their cost to serve. In addition, some firms engage in practices 
                                                                                                                                3 
             PS21/5     Financial Conduct Authority
             Chapter 1  Feedback to CP20/19 and final rules
                       that can discourage customers from shopping around. While lower prices are available 
                       for customers if they regularly switch or negotiate with their existing provider, price 
                       walking distorts competition and leads to higher overall prices for customers.
                       Delivering fair value in a digital age
             1.8       Our findings showed that markets are failing to achieve fair value for those consumers 
                       who are paying a loyalty penalty. We explained in our 2020 business plan the three target 
                       outcomes we want to see, to ensure consumers get fair access, price and quality:
                       •   consumers can choose from products that meet their needs, at a suitable quality 
                           and price
                       •   digital innovation and competition support greater value for consumers
                       •   vulnerable consumers are not exploited or targeted with poor value products and 
                           services and access to key products and services is fair.
             1.9       Our remedies aim to ensure consumers receive fair value in the home and motor 
                       insurance markets, primarily by ensuring that customers can make choices, and 
                       receive products and services at a suitable quality in relation to the price, over the 
                       lifetime of the customer relationship.
             1.10      The remedies will support our other work to deliver these outcomes, including the new 
                       Consumer Duty, on which we are currently consulting (CP21/13), and our recently‑published 
                       Guidance for firms on the fair treatment of vulnerable customers (FG21/1).
                       Our consultation
             1.11      We consulted on a package of measures to improve competition and ensure firms 
                       offer fair value products in the future, including:
                       •   A pricing remedy requiring that when a firm offers a renewal price to a customer, 
                           this should be no greater than the equivalent new business price (ENBP) for a new 
                           customer.
                       •   Enhancements to our existing product governance rules to ensure firms have 
                           processes in place to deliver products that offer fair value to customers. These 
                           provisions would apply to all non‑investment insurance contracts, including all 
                           types of general insurance and pure protection insurance, not only to home and 
                           motor insurance.
                       •   Rules requiring firms to offer a range of accessible and easy options for consumers 
                           who want to cancel auto‑renewal on their contracts. We proposed applying these 
                           provisions to all general insurance contracts sold to retail customers.
                       •   Reporting requirements to help ongoing supervision of the home and motor 
                           insurance markets and help us monitor firms.
             1.12      Alongside our consultation, in September 2020 we also introduced new reporting and 
                       governance requirements around value measures. These give greater transparency 
                       around product value and provide specific metrics for firms to consider when 
                       assessing whether their own products offer fair value to their customers.
             4