Posted: 19th September 2016
In December 2015, the FCA consulted on new rules and guidance for general insurance renewals.
The proposals were intended to address concerns about levels of consumer engagement, the treatment of consumers by firms at renewal and the lack of competition that results from this.
The FCA’s consultation closed in March 2016 and they received 113 responses. The latest policy statement sets out the FCA’s response to the feedback they received, along with final rules and guidance.
Key points from PS16/21
The Policy Statement follows on from the FCA’s consultation in December 2015, and a large proportion of the proposals presented in the consultation paper in March are being taken forward. However, there are a handful of changes arising from the feedback:
- If a consumer’s circumstances have changed during the course of any given year of their policy, firms must provide an annualised premium reflecting any mid-term adjustments. Where no such adjustments have been made, firms will still be required to show last year’s premium at renewal stage. This information must not obscure the decision a customer makes to renew
- Changes made to the ‘shopping around’ disclosure mean consumers will also be encouraged to consider the suitability of the cover on offer, as well as price. However, the prescribed shopping around message – to be included in customers’ fourth renewal – has been altered to read ‘You have been with us for a number of years. You may be able to get the insurance cover you want at a better price if you shop around’
- 10-month policies will be also included in the scope of new rules, in order to prevent some firms avoiding the new rules
- The regulator has extended the proposed implementation time by three months to ensure all areas of the industry are given sufficient time to embed the change
Therefore, the proposals being taken forward are:
The need to disclose the customer’s previous premium on renewal notices – additionally, firms will not be required to include details on other fees and charges due to the risk of overcomplicating the information. Monthly payments may be displayed alongside last years’ premium.
The need to include the disclosure clearly, accurately and prominently at renewal – disclosure must be displayed in a place that makes it easy to compare with the renewal quote.
Shopping around messages – the FCA “did not prescribe the form of these messages” in March, and is still offering firms flexibility in how they do this – as included in the changes to the proposals previously mentioned, many respondents supported the need to prompt consumers to consider both cover and cost.
The scope of new rules – proposals will “apply to all retail general insurance policies, across all channels, and to both automatic and manual renewals”, despite some feedback opposing this. The regulator references its trial findings, in which a cohort of home insurance customers demonstrated an increase in switching having been given shopping around messages, even in the already competitive home insurance market.
Group policies – disclosure should be provided to the consumers responsible for negotiating a price at renewal
Non-Handbook guidance – this point garnered few responses and so the non-Handbook guidance in appendix 2 of PS16/21 remains consistent with CP15/41
Regulatory next steps
The FCA require firms to make the necessary changes to their renewal communications by 1 April 2017.
These proposed measures “aim to increase engagement and promote competition through enhanced disclosure”, and recent trial work suggests that better disclosure and improvements to firms’ practices do increase engagement. However, the new rules are, according to the regulator, “unlikely to fully address consumer inertia when renewing general insurance policies”.
The FCA state that they have developed these rules and guidance in the context of the existing UK and EU regulatory framework. The FCA will keep the policy under review while assessing whether any amendments will be required due to changes in the UK regulatory framework. This includes as a result of any negotiations following the UK’s vote to leave the EU.
Considerations for firms
The FCA is giving some autonomy to firms on how they formulate and display their shopping around messaging. How will you ensure that your versions of these messages are effective and the product being offered for renewal is competitive (on both cover and price)? What type of innovation around product or process might give you the competitive edge whilst ensuring your messaging is clear, fair and not misleading?
Can you accurately benchmark your firm against competitors in terms of service and customer satisfaction/outcomes? It will be increasingly important to get an accurate view of the outcomes you are providing to customers to satisfy the regulator.
Furthermore, the satisfaction customers have with your service will of course be a factor in a consumer’s decision to renew. Given the focus on pricing transparency, firms should avoid a “race to the bottom” in terms of cover and should consider how products will ultimately meet the end consumer’s needs whilst being transparent in relation to both price and cover.