FCA launches market study into home and motor insurance pricing

The study follows supervisory work into insurers’ pricing policies (27 page / 326 KB PDF) which found firms failed to have appropriate strategies and control over pricing practices and activities, which meant they were unable to reliably assess and demonstrate whether they are treating their customers fairly.

The FCA said differential pricing had led to some identifiable groups of consumers paying significantly higher prices than other identifiable groups of consumers with similar risk and cost-to-serve characteristics.

The market study (17 page / 321KB PDF) will focus on four key issues: the consumer outcomes from pricing practices; the fairness of outcomes from pricing practices; the impact of pricing practices on competition; and the necessary remedies to address any harm found.

The FCA said its supervisory work had identified potential non-compliance by some firms with its rules on transparency at renewal.

Alongside the market study, the FCA said it would address insurers’ conduct. It also published a discussion paper (41 page / 485KB PDF) on the wider issue of fairness of pricing in financial services.

That paper focuses on why some financial services firms charge different prices to different consumers based solely on differences in consumers’ price sensitivity, as well as looking at firms which charge existing customers more than new ones. 

FCA chief executive Andrew Bailey said: “Our initial work has identified a number of areas of potential consumer harm. We want to make sure that general insurance markets deliver competitive and fair prices for all consumers. This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.”

The study was initially flagged in the FCA’s business plan published in April, but continues work done by the authority over the past few years on the value for money of general insurance products. It comes just weeks after the Competition and Markets Authority (CMA) announced that it would investigate a 'super-complaint' over a so-called 'loyalty penalty' that consumer watchdog Citizens Advice says consumers pay when they stay with their existing providers in the mobile, broadband, savings accounts, mortgages and household insurance markets. The FCA is working with the CMA on that investigation.

The FCA is seeking input on the issues discussed in the market study terms of reference and accompanying evidence by 3 December 2018, and it aims to publish an interim market study report in summer 2019 setting out preliminary conclusions including, where practicable and appropriate, a discussion of potential remedies. It aims to publish its final report and, where required, consultation on proposed remedies by the end of 2019.

The FCA is seeking input to the discussion paper on fair pricing and accompanying evidence by 31 January 2019.