The Financial Conduct Authority (FCA) has identified £3.7 billion in potential car and home insurance savings for sonsumers in sector reforms being considered as part of a new consultation.
The FCA's proposed legislation would prevent motor and home insurance renewals from being more expensive than those offered to customers taking out a new policy as part of its sector reform plans.
In a final report of its market study into the pricing of home and motor insurance, published today (september 22), the FCA expressed concern that the home and motor insurance markets are not working well for consumers – identifying the potential for £3.7bn in savings for customers over the next 10 years.
In a statement issued this morning the FCA said that insurance providers had been employing “complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year on year”.
It said: “While some people shop around for a deal, many others are losing out for being loyal.
“Firms target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave.
“At the same time, firms do not always offer regular switchers their lowest prices.”
Under new proposals the FCA said that renewal customers should pay no more than a new customer searching for a new motor or home insurance policy online.
The FCA said that its investigations had identified six million policyholders who were paying high or very high margins in 2018.
It said that “if they paid the average for their risk, they would have saved £1.2 billion. Some of this is due to harmful pricing practices, which the FCA’s proposals aim to tackle”.
The FCA is also consulting on other new measures to boost competition and deliver fair value to insurance customers including:
- Product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term.
- Requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed.
- Making it simpler to stop automatic renewal across all general insurance products.
Responses related to the FCA’s proposed reforms are now being sought by January 25, 2021.
It will consider all the feedback and intends to publish a Policy Statement and new rules next year.
Christopher Woolard, interim chief executive of the FCA, said: “We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers.
“The package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.”
Commenting on the FCA's proposed insurance reforms today, Frank Brown, practice lead at finacial services consultancy, Bovill, said that "seeing it in black and white is going to be quite sobering for the insurance industry."
Brown added: "Pricing not for risk, but for what you think customers will pay was inevitably going to be an unsustainable strategy with the FCA having competition powers."
The FCA's reform plans for the insurance sector follow news that insurers will have to pay out claims on business interruption insurance policies amounting to hundreds of millions of pounds after a High Court ruling found in favour of a case brought by the FCA.
It argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in a representative sample of policy wordings did provide cover in the circumstances of the COVID-19 pandemic.
Many claimants had been denied a pay-out by insurers citing such clauses, with an estimated 370,000 business policy holders now expected to benefit from the ruling.