In May the FCA published Policy Statement 21/5 (‘PS21/5’) setting out the FCA’s rules governing general insurance pricing practices within home and motor insurance following the FCA’s findings from the general insurance market study.
The key rules set out in PS21/5 are as follows:
- Insurers and price-setting intermediaries that offer or distribute home and/or motor insurance must not offer a renewal price to a customer that is greater than the equivalent new business price for a new customer. This is to avoid customer harm that results from ‘price walking’ (i.e. the practice of offering new customers lower prices which inadvertently results in overcharging existing customers).
- Insurers and intermediaries must offer consumers a range of accessible and easy options to stop their policy from auto-renewing. As a minimum, customers must be allowed to opt-out of auto-renewal by telephone, post and email or online and, at least, allow consumers to opt-out of auto-renewal using at least the same methods by which they allow consumers to purchase a new policy. Firms must inform customers at point-of-sale and in good time before renewal of their option to stop their contract from auto-renewing.
- Principal firms will need to ensure that any of its appointed representatives that are price-setting intermediaries comply with the pricing rules to protect against existing customers being overcharged at renewal.
- The introduction of new reporting requirements for price-setting intermediaries, namely to report both gross rated business (i.e. business where the insurer sets the customer’s price) and net rated business (i.e. business where the price-setting intermediary sets the price). This will give the FCA insight into potential issues with the setting of the net price by insurers and the gross price charged to customers. Price-setting intermediaries reporting data must be split by tenure in one-year intervals from T1 (one year) to T9 years and a category for T10 years or more and by channel (e.g. direct, price comparison website, intermediated and affinity/partnership scheme).
- Intermediaries that have a direct relationship with customers will be responsible for reporting on premium finance as an add-on product where the premium finance price is set by a premium finance provider. Intermediaries will be required to report information on the total charged (£) for retail premium finance during the reporting period and the number of policies with a breakdown by APR ranges.
The FCA’s rules on pricing, auto-renewals and reporting will come into effect on 1st January 2022.