General Insurance Pricing Practices (GIPP) (1)
YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (1)
Relevance: All firms.
Action required: Begin preparations for changes required under new FCA rules on product pricing and value.
The FCA has recently published a policy statement that is the culmination of a few years of investigation and review of the way firms price personal lines General Insurance products. Their concerns primarily (but not solely) stemmed from the practice of price differentiation, between new business and renewal premiums, how this was carried out by firms and its potential impact on consumers.
The full policy statement can be found using the following link; it is over 200 pages long and the final rules are aimed at addressing what has been described as the ‘loyalty penalty’ paid by existing general insurance product customers.
This is a significant set of Rule changes which were driven by Consumer detriment. However, they will impact Commercial business too.
This newsletter is only the initial “wake-up call” for client firms that have not yet started to undertake an assessment of how they might be affected by the new rules.
Over the next few weeks, we will be issuing separate newsletters covering individual topics where changes to firms’ processes and procedures will be necessary.
Background:
The FCA has carried out a number of studies and published various papers on fair value. It has concluded that:
·Firms are failing to implement appropriate and effective strategies, governance, control and oversight of their pricing practices and activities to reliably assess and evidence that they are treating their customers fairly.
·Differential pricing is leading to loyal clients paying significantly higher prices than those that shop around regularly.
New Rules:
The rules introduce a package of market remedies. These include:
From 01.10.21:
Additions to the product governance rules that require firms to have processes in place to deliver products that offer fair value to customers. There is a strong emphasis on the impact that the distribution chain has on the final price.
This will apply to all general insurance and pure protection products. If you set the price for a product, or set fees, these requirements will apply to you directly.
There are also additional Senior management oversight requirements and reporting (the latter from 2022).
From 01.01.22:
Home and Motor renewal prices can be no greater than the equivalent price for new business. This also applies to any additional products associated with the sale, including Premium Finance, Add-on covers and Fees.
Rules requiring firms to offer accessible and easy options for customers wishing to opt out of auto-renewal. These measures will apply to all Consumer general insurance contracts with a duration of 10 months or more.
Additional Premium Finance disclosures for Consumers (not Commercial clients) regarding the cost of using finance rather than paying in full.
Reporting requirements to support the ongoing supervision of the home and motor insurance markets, including additional products such as premium finance and fees.
Impact
The policy statement marks the end of a long period of discussion about ‘price walking’ whereby the FCA has identified that existing customers pay more than new customers for general insurance products. The new rules will require firms to make a number of significant changes to their internal policies and to existing product governance arrangements. In many cases, the new provisions will impact existing distribution arrangements.
The FCA has stated that “The remedies will support our other work to deliver these outcomes, including the new Consumer Duty, on which we are currently consulting (CP21/13), and our recently‑published Guidance for firms on the fair treatment of vulnerable customers (FG21/1).”
As indicated above, we will be issuing further newsletters over the coming weeks to assist firms with getting ready for the revised arrangements.
If you need to discuss any aspect of this matter with us, please make contact in the normal way.
