The Financial Conduct Authority (FCA) – which published its final rules on general insurance pricing practices in May – has released a new policy statement (PS) to make “minor” amendments based on stakeholder feedback.
“Since publishing PS21/5, we have engaged with stakeholders to understand the challenges involved in implementing our rules,” noted the FCA on its website. “PS21/11 contains updates and clarifications to address some of the issues raised.
“Specifically, the rules in Appendix 1 of PS21/11 clarify the application of some of our rules to firms that give discounts or other incentives to customers; clarify the application of our reporting rules to intermediaries that rebate commission; amend the definition of a ‘renewal’ – this will alter the way in which our pricing and reporting rules apply to firms; clarify the operation of the transitional rules; [and] make minor amendments to some of the reporting and other rules.”
In the area of commission-rebating, for instance, stakeholders have asked the regulator to clarify the treatment of business where intermediaries discount their commission to lower the amount paid by consumers in relation to the gross price set by the insurer.
In the policy statement seen by Insurance Business, the FCA said: “We are amending our rules to clarify that, for reporting purposes, commission‑rebated business counts as gross‑rated business, where only the insurer is required to report data. Under these changes, we are also introducing a requirement for intermediaries to notify us where over 25% of either their home or motor sales include commission‑rebating.
“This will give us greater insight into the extent of commission‑rebating in the market and will allow us to monitor more effectively the impacts of our remedy package and firms’ compliance with our rules to ensure delivery of benefits to consumers from the pricing remedy.”
According to the watchdog, it is currently working on the final wording of the attestation that price‑setting firms are required to submit under the rules. The form, which the FCA aims to publish “very shortly,” will also allow companies to make the necessary notification about commission‑rebating.
As mentioned, the definition of “renewal” has also been revised, following feedback that the original broad definition could pose problems, particularly in scenarios where the insured chooses to lapse their current policy and take out another one with the same insurer through a different partner, intermediary, or channel.
“Not all insurers would have processes to identify such customers as ‘renewals’ and, if they were required to do so, this would significantly increase costs and could delay implementation,” conceded the regulator in its new policy statement. “We also expect consumers who choose to take out a new policy with the same insurer in these circumstances will benefit from a new business price and so will not be exposed to risks of price walking.
“We recognise the potential challenges and costs to firms to identify these transactions as renewals and collect and report data on them. The challenges to firms will increase where firms have multiple distribution channels and arrangements in place.”
Amending the definition aims to address the above.
The FCA clarified: “Where an existing customer actively buys a policy with the same firm through a different channel or distribution arrangement, then firms should treat this as new business rather than renewal business.
“However, where firms actively move a customer to another channel, distribution arrangement, or to a different policy (of a similar type) at the lapsing or expiry of an existing policy, then they should continue to treat these as renewals for the purposes of our pricing and reporting rules.”
The watchdog added that it is important that these amendments be made so that firms understand how the FCA’s rules operate and can effectively implement the necessary process changes by the required deadlines and, more importantly, deliver the expected benefits to policyholders.
