General Insurance Pricing Practices (GIPP) (5) 

YOUR COMPLIANCE MATTERS:         General Insurance Pricing Practices (GIPP) (5) 

Relevance:                 All firms. 

Action required:       Ensure arrangements are in place to comply with new Product Governance rules and “Fair Value” requirements from 01 October 2021. 

The FCA policy statement on General Insurance Pricing Practices (PS 20/19) was published at the end of May 2021. 

PS21/5: General insurance pricing practices market study: feedback to CP20/19 and final rules (fca.org.uk) 

Previous newsletter emails on this subject have covered;

·        A general overview of GIPP;

·        The Pricing Practices Survey,

·        Reporting requirements; and

·        Auto-renewal. 

This newsletter reminds firms that there are changes coming into effect on 01 October 2021 that are part of the package of remedies that the FCA is using to address problems identified in its market study looking at pricing practices in home and motor insurance markets, such as “price walking”.

 Product Governance:

New Rules:

·        Product governance rules are expanded to apply regardless of when a product is manufactured;

·        New rules applying to “manufacturers” (including intermediaries in appropriate cases) and “distributors”;

·        Manufacturers must ensure that their products offer “fair value” to customers for a “reasonably foreseeable period” and that any distribution channel used results in fair value to customers;

·        Distributors must ensure that any distribution strategy is consistent with the aim of providing “fair value” to the customer

·        Products and distribution arrangements must be reviewed at least every 12 months 

Changes made by PS21/5:

·        Minor changes to rules on sharing of data and the responsibilities of parties in the distribution chain;

·        Existing guidance FG19/05 on general insurance distribution chains will be withdrawn once the new rules come into force 

Effective from:

·        01 October 2021 (01 January 2022 for the premium finance disclosure rules) 

Achieving “Fair Value”:

·        “Value” means the relationship between the overall price to the customer and the quality of the products/services provided.

o  Whether a product provides “fair value” must be assessed at every stage of the product approval process and records of assessments made and retained.

·        “Fair value” considerations include:

a)  the nature of the product, its benefits, their quality and limitations;

b)  the type and quality of services provided to customers;

c)  expected total price to be paid by the customer and its components;

d)  how intended distribution arrangements support the intended value of the product.

·        All available information should be taken into account, including data published following the FCA’s recent work on general insurance value measures

·        Examples of arrangements where “fair value” is unlikely to be satisfied include:

oThe difference between the risk price to the firm and total price paid by the customer cannot be justified on the basis of:

a)  actual costs incurred;

b)  the quality of any benefits; or

c)  the cost or quality of any services.

oPrice should not be increased on the basis of:

a)  whether a policy is subject to auto-renewal;

b)  the customer’s vulnerability;

c)  whether retail premium finance is used to buy the policy.

oUse of an estimated final price to the customer to assess value that does not represent the expected total price including any additional products 

·        A “reasonably foreseeable period” will vary with the type and length of the contract.

Self-Assessment:

To assist firms in determining their positioning and readiness for the changes, we have attached forms to be used as an initial assessment.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.