General Insurance Pricing Practices (GIPP) (6)

YOUR COMPLIANCE MATTERS:         General Insurance Pricing Practices (GIPP) (6)

 Relevance:                   All firms.

 Action required:         Ensure any Premium Finance arrangements in place are reviewed to comply with new requirements from 01 January 2022.

 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;

1. A general overview of GIPP;

• The Pricing Practices Survey,
• Reporting requirements;
• Auto-renewal; and

Product Governance rules and “Fair Value” requirements.

 Significant parts of the new rules will apply only to the parties that set the insurance premium; generally the insurer, but not always.

 There are some areas where intermediaries have a direct impact on the cost paid by the consumer, one being Premium Finance; where it is considered normal practice for the finance provider to agree net charges with the broker, thereby allowing the broker to determine the gross price paid by the end user.

 This newsletter will concentrate only on the impact of the new rules in respect of Retail Premium Finance; to be clear, the rules do not apply to Commercial customers.

 So from 01 January 2022, if you are planning to offer premium finance, you need to confirm the following items to your customer, in good time, before inception or renewal:

 

• The total cost of the policy if the premium were paid in full.
• The total cost of the policy if premium financed is used.
• The difference between the two figures.
• Confirmation that utilising premium finance will be more expensive than paying for the premium up front.

Details of any differences between the duration of the policy and that of the premium finance arrangement (if there are any).

 Information needs to be presented in an accessible manner which makes it clear that this is key information.

 It is also a requirement that the customer makes an “active election” between paying in full and paying using premium finance.  Therefore you will need to:

• provide them with the annual costs and the difference between them; and

seek the customer’s confirmation whether they wish to use premium finance or pay the premium in full.

 

Guidance from the FCA states:

“For the purposes of ICOBS 6A.2.1R, providing the customer with the choice between paying monthly or annually will not be sufficient to show the customer has made an active election to obtain the retail premium finance.”

 

The Customer’s Best Interest Rule

You must not put forward a premium finance arrangement unless this is in the customer’s best interest.

 You, therefore, need to ensure that any premium finance arrangements that you use do not conflict with this requirement, for example, proposing a premium finance arrangement which is more expensive than that which would be available from the insurer direct.

 Product Governance

 The FCA rules state that, on a regular basis (at least annually?), you need to consider your premium finance arrangements and assess how these are providing fair value to the customer. You will need to retain evidence of your selection and how this provides fair value to the customer.

 To assist firms in reviewing their Premium Finance arrangements, a template form is attached, which will form part of the Compliance Monitoring process we undertake with firms.

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