In May 2018, the Association of British Insurers (ABI) and British Insurance Brokers’ Association (BIBA) published its 'Guiding Principles and Action Points for General Insurance Pricing' (GPAPs). It outlined the commitments that firms should be working towards to help address the excessive price differences between new customers and renewal premiums that unfairly penalise longstanding customers – often referred to as ‘the loyalty penalty’.

Since this publication, the general insurance sector has been under heightened regulatory scrutiny putting even more pressure on businesses to get it right. Shortly after GPAPS was published, a Citizens Advice super-complaint was issued to the Competitions and Markets Authority calling on it to identify remedies and recommendations to put an end to the penalty paid by help address the excessive price differences between new customers and renewal premiums that unfairly penalise longstanding customers – often referred to as ‘the loyalty penalty’. loyal and disengaged consumers. The Financial Conduct Authority (FCA) has also made clear its expectations of insurance firms: put customers’ interests first, else face heavy sanctions.

Progress to date

As promised, two years after publication, the ABI and BIBA have now surveyed a number of firms and reviewed the impact that these Guiding principles have had on the market and its customers.

Key findings from the review are:

• Senior management: All firms surveyed have incorporated the GPAPs into their processes for determining renewal premiums and made the issue a Board or Executive level priority.
• Customer communication: Thirteen of the eighteen companies surveyed have gone further than FCA requirements on renewal pricing: alerting new customers that the ‘new customer premium’ only applies for the first year and that renewal premiums may be higher.
• Process reviews:
  • All firms surveyed have implemented a review process on renewal pricing, with 94%having a specific focus on customers who have been with them for five or more years.
  • 94% of firms have also implemented processes to identify and review outcomes for vulnerable customers at renewal, whilst the remaining firms have plans to do so.
• Interventions:
  • In total there were over 8.5 million pricing interventions across motor and home insurance over the 20 months included, worth a total value of £641 million.
  • Individual firms reported an average saving per intervention ranging between £40 and £150 (for the majority of interventions).
• Brokers:
  • The vast majority of brokers either re-broke every year, irrespective of price change, or if there has been an increase in the premium (for home and motor insurance).
  • Brokers reported that system-generated renewal prices were monitored for increases and underwriters contacted about premium levels where appropriate

This is a positive indication of the work insurers and brokers have already done to address the recognised issues with unfair pricing. Progress has clearly been made to prioritise customers and prevent existing customers from falling victim to the ‘loyalty penalty’. Over half of the above interventions have directly resulted from the GPAPs, meaning their introduction has helped over 4 million customers get lower premiums.

Next steps

However, there is more to be done to address the FCA’s concerns. Insurance firms are currently awaiting the final report of the FCA Market Study, commissioned in response to the CMA super-complaint. In the meantime, firms can be, and have been, already taking action. This includes but isn’t limited to: reviewing pricing and distribution strategies, ensuring products are providing value for money, proactively reviewing back books to identify potential harm to customers caused by pricing practices and assessing how pricing complaints are identified and dealt with.

This is a pivotal time for the industry and as good progress is made, it’s important firms don’t lose momentum. If the GI market can heed the results of the FCA Market Study as well as GPAPs, there is an opportunity to limit the need for regulatory intervention moving forwards.

Finally, whilst the focus of the FCA’s investigation has been how pricing works within the General Insurance market, there may well be implications for the whole financial services industry. It’s important to note the shift towards customer outcomes and value for money, as well as taking a more interventionist role in pricing.