The FCA estimates that around 6 million policyholders pay high prices and are not getting a good deal on their insurance. If those customers paying high premiums paid the average premium for their risk they could save around £1.2 billion a year. This affects all types of customers. The FCA estimates this includes 1 in 3 people who are potentially vulnerable.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, commented:
'This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around 6 million consumers.
'We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.'
In particular, the FCA found that:
- Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch.
- Longstanding customers pay more on average, but even some people who switch pay higher prices.
- From the FCA’s consumer research, 1 in 3 consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability. For consumers who bought combined contents and building insurance, lower income consumers (below £30,000) pay higher margins than those with higher incomes.
- People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium.
- Most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price. This is not made clear to the customer.
- Firms engage in a range of practices to raise barriers to switching.
- Many consumers who switch or negotiate their premium can get a good deal.
The FCA is undertaking a range of activities in order to address the problems it has identified. Through new rules introduced in 2017, the FCA has already improved transparency on renewal for general insurance policies which has delivered significant savings to customers.
The FCA will also continue its work to ensure firms improve the oversight of their pricing practices and deliver the changes required following other recent policy changes.
The FCA is also considering remedies to:
- Tackle high premiums for consumers – this could include banning or restricting practices like raising prices for consumers who renew year on year or requiring firms to automatically move consumers to cheaper equivalent deals.
- Stop practices that could discourage switching – including restricting the way that firms use automatic renewal.
- Make firms be clear and transparent in their dealings with consumers - including improvements to the way firms communicate with their customers. The FCA is also considering whether firms should publish information about price differentials between their customers.
- Harness the benefits of innovation in the longer-term, so that general insurance markets benefit positively from technological developments including Open Finance.
The FCA has set out its interim findings and potential remedies. It intends to publish a final report and consultation on remedies in Q1 2020.
Notes to editors
- The FCA’s general insurance pricing practices market study is part of a wider package of work it has underway in this sector. This includes working with firms following its letter to the Chief Executives of general insurance firms to improve the governance, control and oversight of their pricing practices, implementing changes required following the Insurance Distribution Directive and the FCA’s work on value in the general insurance distribution chain.
- The FCA has also published an evaluation of its 2017 renewals rules in home, motor and pet insurance which aimed to increase transparency and engagement at renewal and encourage people to shop around. The FCA’s central estimate of consumer savings is £185 million per year due to its intervention.
- The home insurance market was one of the markets identified by Citizens Advice in its super complaint to the Competition and Markets Authority (CMA) on the loyalty penalty.