Final Rule GI Pricing Practices

You will have seen that on 28th May 2021 the FCA published its paper on pricing rules in the GI Market. This follows several years’ work from the regulator to address the harms suffered by loyal customers of home and motor insurance providers.

New ruling

It has long been the case that regulated firms have a duty to treat their customers fairly, however the work performed by the regulator has shown that in many cases this has not been delivered in the GI space. The most prominent change that the FCA brings in is that firms will no longer be able to slash new business premiums in order to attract new customers, only to penalise them in subsequent years with hugely inflated prices which bear little resemblance to the actual cost of providing the policy. This unfair profiteering has become known as ‘Price Walking’ and it will be banned from the start of 2022, removing the need for customers to outwit insurance providers and move their polices year on year in order to get a fair deal.

As we know, price is only part of the story and there is a raft of new rules on product governance which take effect from September 2021, meaning firms must test the products they provide for “value” on a regular basis.

Key considerations

There are some key considerations for distributors and firms as a result of the FCA’s recent moves. This will include having a clear understanding of GI provider panels value proposition and whether or not these providers have undertaken the practice of price walking your customers, whom will probably have paid a financial penalty for their loyalty. In the case of legacy back books there is also a strong likelihood that some customers will be holding policies that are outdated, have not benefited from product development and would not pass any of the tests that the FCA has introduced.

The ultimate aim for the regulator is to create consistent pricing; this may well mean the end of cheap deals in the first year, but it will bring about a more sustainable ongoing insurance bill for the customer who will have a better idea how much their home insurance costs year on year.

What this means for advisers

For advisory firms, the new rules will mean that, as price will no longer be the sole representation of value, the profession can lead the insurance conversation without the traditional sensitivity on first-year prices. It’s a significant opportunity to reclaim intermediary market share from price comparison sites which had become more successful when new business pricing competition became artificially more aggressive.
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