Benjamin Hatton, Insurance Analyst at GlobalData, comments: “Prohibiting dual-pricing practices, whereby an insurer charges new customers reduced premiums before increasing them gradually upon renewals, has limited the extent to which providers can undercut rivals in order to win new business. Over time, insurers must increase operational efficiency and improve claims management – keeping claims costs lower in order to maintain a healthy bottom line.”
GlobalData found that price disparity in the motor line has fallen from 45.3% in 2020 to just 12.3% in 2022. Higher costs in the mandatory motor insurance line will further squeeze consumer finances, and the new FCA pricing rules will make it harder for insurers to win new business by restricting their ability to undercut rivals on PCWs.
Hatton notes: “For motor insurance customers, this provides yet another growing cost to add to the headache of the cost of living crisis. Consumers will be disappointed to see their motor insurance premiums rising at such a difficult time financially, especially with inflation currently at 5.4%, energy bills set to increase by over 50% for millions in April, and the looming rise in National Insurance contributions.”
GlobalData also found that price disparity in the home line has fallen from 44.5% in 2021 to 9.2% in 2022. Providers are battling with tightening combined ratios including a negative underwriting result (paying out more in claims than collecting in revenue) in 2020 and waning demand driven by Generation Rent. GlobalData research also finds that average quotes for home insurance are slightly lower in 2022 than previous years.
Hatton continues: “Insurers may fear that too high a rise in home insurance premiums will drive consumers away from the market altogether. This is especially true of low-income households that will feel the financial strain of 2022 more significantly than other demographics.”
Although it is early days for the FCA pricing rules, having only come into effect in January 2022, there is certainly good evidence that they are beginning to affect insurers’ pricing strategies. Consumers will become more averse to price increases in optional products, opting for cheaper alternatives or forgoing the product altogether.
Hatton adds: “Claims management, cost-effectiveness, and operational efficiency will gain even greater significance moving forward as price increases become less feasible for insurers.”
|
