The profitability of the UK’s life sector is poised to be negatively impacted as a result of newly implemented consumer rules, according to new commentary by Fitch Ratings.
Part of the consumer duty package introduced by the Financial Conduct Authority (FCA), the new rules require financial services companies to demonstrate fair value pricing.
The change may lead insurers to reassess their pricing structures to avoid potential findings of overcharging, Fitch Ratings said, although anticipated reductions in charges are likely to be moderate and won’t have any ratings implications.
Fitch Ratings additionally stated that the increased regulatory pressure is unlikely to create heightened competition within the UK life market since offerings are not easily comparable across companies due to the lack of commoditisation.
However, the need to balance fair value with profitability may push insurers to accelerate cost-reduction initiatives, digitisation efforts, and platform innovations.
The commentary pointed to St. James’s Place UK plc as an example of the sector already starting to respond to the new regulatory landscape.
St. James’s Place imposed a 0.85% cap on annual product management charges for bond and pension contributions that have been invested for a minimum of 10 years. The company said this move will reduce its net income from managed funds by roughly four basis points.
The FCA’s new rules came into effect on July 31, 2023, following an extensive consultation process that culminated in the issuance of final guidelines in July 2022. Firms have an additional year before the rules apply to closed-book businesses.
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