The following is a column written by Duncan Minty, member of the MGAA Conduct & Ethics Committee.
A spotlight has been turned on the sector’s pricing practices.
The super complaint issued by Citizens Advice may have raised issues with the household market, but its ramifications will be felt right across retail general insurance, and with ripples likely to reach commercial and long term covers as well, there will be few MGAs not touched by it in some way.
The super complaint triggered an immediate regulatory escalation from the FCA. Its review of household pricing was quickly turned into a market study of pricing across retail general insurance. The results? The findings are likely to take some time to emerge.
Time was something the FCA probably wanted more than anything else. In recent years, they’ve assembled huge amounts of granular data about household pricing which they’ve been using to identify the shape of the problem and then trial the impact of different remedies. It’s that trialling that takes time, and the broader remit will grant them this.
In addition, a recent joint FCA / CMA report talked about regulators not being afraid to experiment with bolder remedies - more time gives them that opportunity. The market might want to steel itself for some tough medicine to treat what some have described as a ‘crack cocaine addiction’ to dual pricing.
MGAs are going to be in the spotlight just like any other firm. That granular data on household pricing isn’t just a sample – it covers a large part of the market on an insurer by insurer basis. Data scientists have been slicing and dicing it for several years now. This means firms both big and small will be included.
The FCA is taking a bit of a political gamble though. The time required for a wider remit might frustrate Citizens Advice, a politically very well-connected organisation. The risk for the FCA is that CA will start priming politicians to ask awkward questions. Finding itself before a Parliamentary Committee is the stuff of nightmares for FCA executives.
The retail pens held by MGAs are ultimately the responsibility of executives who are just about to find their name emblazoned on their firm’s SMCR responsibility map and that individual accountability matters here. Whatever the pricing remedy decided on by the FCA, it will hold both individuals and firms accountable for its implementation. Anyone that senior is not going to want to be the person identified as a laggard and made to pay a career penalty which is the effect that a super complaint can have.
So, MGAs need to keep the pricing market study on their radar. They need to take a careful look at the pricing practices they utilise for retail GI and satisfy themselves that every rating factor, every pricing lever, every clever algorithmic tweak will stand up to scrutiny by a sceptical outsider.
What would a sceptical outsider be looking for? The obvious issues would be around fairness and non-discrimination. More sophisticated pricing systems would be examined for how preferences and perceptions are handled. This should then be rounded off with a look at explainability and accountability.
This pricing spotlight will be the first in a SMCR world and MGAs must keep an eye on developments.
