David Miller, Financial Services Partner, KPMG said: “The FCA's proposals today on general insurance pricing practices cut straight to the heart of the issue of fair pricing. Ensuring that existing motor and home insurance customers can pay no more than new customers at renewal will remove the practice of increasing existing prices relative to new prices over time therefore penalising longstanding customers for not shopping around.
“Whilst there are potential consumer savings in the long-term, there is a risk of short-term pricing increases for new customers. The unintended consequence of these measures could also have significant impact on the wider insurance ecosystem, as consumers are less incentivised to shop around, impacting insurers’ distribution strategies.
“This is a very significant intervention aimed at improving customer outcomes, with a number of the remedies going beyond the motor and home insurance. This leaves insurers with much to consider regarding some of the fundamentals of how they do business.”
Mohammad Khan, UK General Insurance Leader at PwC UK, said: “The FCA’s proposed remedies to pricing and renewal processes will reward loyal customers, but could increase the cost of insurance for others.
“In particular, consumers who regularly shop around for motor and home insurance will likely see premiums rise. For some young drivers who regularly shop around, their new annual insurance premium may rise by more than £50.
“The proposed remedies will, however, have some time to be enacted - potentially by 2022 at the earliest - which means that customers who don’t traditionally shop around for insurance will not see the potential benefit of this for another two years.
“The proposed rules can have a significant impact on certain business models particularly firms with large back books. Firms will be reviewing the impact of these remedies on their strategies and business models. Considering the strength of the proposed remedies it is likely the insurance and broker markets will see significant changes well before the date the new rules become effective.”
Steve White, BIBA CEO said: “Our broker members always aim to offer their customers insurance that meets their needs both in terms of price and cover. Their long-held concerns about dual pricing will be addressed by the FCA’s proposed measures and we look forward to working with the regulator constructively. The report is broad, alongside the ultimate aim of fairness it touches on addressing inequitable Most Favoured Nation clauses following the results of the Competition and Markets Authority enquiry and on firms using innovative solutions to compete.
Brokers are by their nature innovators they will continue to use their entrepreneurial approach to be the ‘go-to’ business for customers seeking fair and good value insurance.”
Jimmy Williams, CEO of insurtech company Urban Jungle, says price walking is wrong and is supporting this move to curtail it.
“Price walking is completely systemic in the insurance industry. Many firms are doing it and we think it should stop so we welcome the FCA’s call.
“The reason it happens is that price comparison websites are so important to insurers. The only way to win on price comparison is to be the cheapest. It’s rational to do everything you can to be the cheapest provider at minute one, and layer on a load of hidden costs and price increases later.”
Williams says he welcomes the ban on price walking but warns of other bad practices in the sector.
“The change caused by this could be profound. Price comparison websites could be heavily impacted as, suddenly, the amount you could save from switching your insurance goes down dramatically. So people might switch less often.
“For insurers themselves, it should make price competition much more transparent which is, in itself, a good thing. However, I suspect insurers will come up with even more innovative ways to rip their loyal customers off.
“The most likely to me seems that they will give away “free” but meaningless cover to more loyal customers and use that to justify the difference between new quotes and renewal ones.”
Williams also calls on the FCA to ensure there’s greater transparency in the industry.
“The regulator still hasn’t banned hidden fees, or large interest payments for paying monthly, so you should watch out for those, too.
“We’d like to see the regulator issue a ban on cancellation fees. They are a clear and obvious barrier to switching, and typically bear no relation to the cost of processing. Urban Jungle doesn’t charge a cancellation fee on any of its products.”
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