Unless you’ve been living under a rock, you’ll know that the Financial Conduct Authority (FCA) ushered in the long weekend with its general insurance price walking ban announcement. (More on that here.) Now we’ve gathered some of the comments from the likes of the Association of British Insurers (ABI), British Insurance Brokers’ Association (BIBA), and Willis Towers Watson (WTW).
Regulation director Charlotte Clark stated following the watchdog’s update: “Insurers support these reforms and will continue working closely with the FCA to ensure they are delivered effectively. While the FCA recognises their interventions could lead to price increases for consumers who regularly shop around, these remedies should ensure that all customers get fair outcomes from competitive insurance markets.
“It is vital that the new rules are applied across the whole insurance market, including price comparison websites and insurance brokers, with a uniform level of supervision and monitoring by the FCA, to ensure good customer outcomes. As the FCA has said previously, insurers do not make excessive profits and, as they now point out, it is likely that firms will no longer be able to offer unsustainably low-priced deals to some customers.”
Clark added that it will remain important to maintain incentives for customers to shop around while ensuring competitive deals for those who stay with their current providers. She also stressed that consumers should be looking at a product’s overall value and that purchase decisions must be based not only on price but on the appropriateness of the policies in relation to their needs.
“While insurers have started to adapt over the past year, now they must race to implement fundamental changes to their business model,” stated Accenture UK & Ireland managing director for insurance James Thomas. “A key challenge will be pricing in a way that reflects customer lifetime value from the outset, using more sophisticated pricing algorithms to adapt to real-time changes in the market.”
Thomas continued: “Consumer trust and retention will be imperative as longer-term customer relationships become the norm, meaning insurance propositions that combine impeccable customer service, seamless digital interactions, and reliable claims experiences will be winners going forward.
“UK insurers are already planning and implementing different strategies to address this regulation, but the timelines are tight and the changes significant – so we do expect the UK personal lines market to look considerably different in 12 months’ time, with some emerging stronger than others.”
For BIBA, the release of the new rules supporting longstanding customers is a welcome development. “We and our members continue to support an end to dual pricing and any move by product providers to compete on the quality of cover as much as on price would be a great outcome for consumers,” said the trade body in a statement.
“In particular, the FCA showing what has to and what does not have to be reflected in the equivalent new business price in terms of incentives or other benefits such as: retail vouchers, cashback, free add-ons or free months; will aid the decision-making process.”
In BIBA’s view, the requirements made around product value will necessitate increased interactions between brokers and insurers. “We are sure that the industry will work collaboratively to deliver on the respective product governance obligations,” BIBA went on to assert. “We will continue to engage with the FCA, to assist members in meeting the spirit as much as the letter of the new rules as these changes are rolled out.”
For Consumer Intelligence chief executive Ian Hughes, “these changes represent a tsunami for both insurers and their customers, but we should be in no doubt that the fault line that sits underneath this is fair value, mentioned 153 times in the final statement. GIPP (general insurance pricing practices) changes will feel like just a ripple for those who don’t offer fair value to customers.”
“There is an opportunity for the industry to take advantage of all this change that is coming and do something that will be good for brands, good for the industry, and good for consumers,” said Hughes. “The tipping point we find ourselves at is a critical point in the journey of this industry and there is an opportunity to be positive.
The CEO believes that those who won’t take advantage of the opportunity are going to find it “really tough” moving forward.
Consumer Intelligence public relations & communications manager Catherine Carey – who thinks the changes are necessary as part of rebuilding consumer trust – added: “This is a shot in the arm for innovation and presses a giant reset button on the relationship between price and value; it will change the relationship between brands and consumers.
“We expect to see insurers changing their models and new firms entering the market for the first time as loss-making year one pricing phases out. If you look at these new rules, and specifically the introduction of fair value, it’s the most exciting time for the development of the general insurance market for decades.”
Rodney Bonnard, UK head of insurance at EY, pointed to “a new era of transparency” as the FCA reinforces its commitment to consumer trust improvement. “The most radical change,” he noted, “as signalled in September 2020, will be the end of ‘price walking’ which will no longer be admissible from January 01, 2022, meaning all firms have to offer existing customers the same price for renewal as they would offer a new customer.
“While this has been signposted for some months now, it is a huge undertaking, and firms are having to work at pace to overhaul their current business and pricing models. In practice, we expect this to be beneficial for longer-term customers but customers who switch providers regularly may pay more once the reform is implemented.”
Bonnard said: “In the immediate aftermath of the transition, we could well see some product consolidation; however, over time, innovation will be crucial to competitive advantage and we will likely see home and motor insurers offering more multi-year and targeted products, enabling customers to buy only the cover they need.
“Throughout, it will be critical that offer details are clearly communicated to customers, with the FCA providing clarification regarding the treatment of non-cash incentives. While the package of reforms do present challenges to the industry, they also offer opportunities to build brand loyalty and better engagement with customers.”
Also offering insights is Forbes Advisor UK personal finance expert Kevin Pratt, who asserted: “The way insurance companies set their prices has been a toxic issue for years. Charging new customers less than ones who are up for renewal is a crude marketing tactic designed to get more people onto the books.
“It shamefacedly exploits existing customers, who effectively subsidise the prices offered to new ones. What makes it worse is that it cynically plays on the loyalty that people often feel towards their insurance companies, and it weaponises the inertia that many others feel when it comes to finding an alternative at renewal time.
In Pratt’s view, it remains to be seen what the full impact of the changes will be.
He said: “Will we simply see prices rise for new customers, as even the FCA suggests will happen? How long will it take for an overall net benefit for insurance buyers to wash through the system?
“The best tactic for anyone who’s buying insurance is still the same as it always was – shop around at renewal; don’t take your insurer's renewal offer as any kind of indicator as to what a fair price might be; and certainly, don’t feel any sense of loyalty to your current provider.”
Rob Benson, insurance head at Grant Thornton UK LLP, had this to say: “While the FCA has made sensible amendments to its proposals in areas such as reporting, allowing customers to opt out of auto-renewals and the definition of ‘closed book’ products, overall it is unsurprising to see that the proposed remedies remain materially unchanged. This demonstrates its conviction that these remedies are the appropriate solution.”
“The transition provision,” he added, “may provide some short-term relief for firms hard-pressed to meet the implementation deadline.
“But given the potential complexities of back-dating benefits to customers and given that the final rules are materially similar to those consulted on in September, firms should already be well-advanced with their implementation projects and so should be aiming to have implemented the required changes by January 01.”
In a joint statement, Insurtech UK co-chairs Luisa Barile and James York declared: “It is a widely accepted view within the insurtech sector that the FCA needed to address price walking (or dual pricing) within insurance. The FCA’s announcement does just that, and Insurtech UK welcomes the robust yet proportionate measures proposed.
“Price walking has damaged customer trust in insurance products and undermined the credibility of the industry. Insurtechs have gone some way to remedy this by repositioning the customer at the centre of the insurance experience, with many making an active choice not to partake in this type of practices. However, insurtechs couldn’t solve this challenge alone and there needed to be strong measures taken by the regulator.”
Insurtech UK believes that this development is a positive outcome not only for customers but for everyone within the insurance and insurtech community who are driving to improve the whole customer journey. “It should also serve as a reminder to the sector that practices like this cannot continue if we are to rebuild customer trust and promote the UK as the global leader in insurance innovation,” said York and Barile.
Meanwhile insurtech specialist Paul Morgenthaler, who is a partner at CommerzVentures, shared the following: “This latest rule change is welcome news for consumers and should serve as a loud wake-up call for any insurance firms finding themselves affected by these updates.
“Customers should be able to clearly and simply understand how their insurers are working for them and after [this] FCA ruling and the rise of digital disruptors providing improved consumer products and experiences, insurance’s incumbents simply can’t afford to take their customers for granted any longer.”
Also happy to see “unethical” price walking come to an end is Jimmy Williams, chief executive of insurtech Urban Jungle. “A customer should not be enticed in with low rates,” he stressed, “only to see them hiked up at a later date. But many firms are doing precisely that, so we welcome the FCA’s decision to ban it.
“The reason price walking happens is because price comparison websites are so important to insurers. The only way to win on price comparison is to be the cheapest. It’s rational to do everything you can to be the cheapest provider at minute one, and layer on a load of hidden costs and price increases later.”
Williams commented further: “The change caused by the FCA’s decision could be profound. Price comparison websites could be heavily impacted as the amount consumers will be saving by switching is going to fall. So, people might switch less often. The new rules should make price competition much more transparent. However, I suspect insurers will come up with even more innovative ways to rip off their loyal customers.
“The most likely to me seems that they will give away ‘free’ but meaningless cover to more loyal customers and use that to justify the difference between new quotes and renewal ones. The regulator still hasn’t banned hidden fees, or large interest payments for paying monthly, so you should watch out for those, too.”
The vocal chief wants to see cancellation fees banned as well.
“The clarity of particular elements of the rules including around the use of incentives and the changes to the closed book rules will likely be welcomed by many in the market, while other elements will no doubt fuel further debate around the best actions for insurers and intermediaries to take now in order to meet the FCA’s requirements,” said Graham Wright, UK property & casualty (P&C) pricing product claims and underwriting lead at Willis Towers Watson.
His colleague, UK P&C consulting lead Stephen Jones, stated: “While in 18 months’ time the industry will have begun to stabilise in the new world, there is no doubt that the coming months will represent one of the most turbulent times for the personal lines industry.”
