Re/insurance broker Willis Towers Watson (WTW) has said it is confident the industry will “rise to the challenge” of the new measures proposed by the Financial Conduct Authority (FCA), which aim to tackle unfair insurance prices for renewing customers.
The main proposal put forward by the UK regulator will require insurers to offer a renewal price for retail motor and home products that is no higher than the equivalent new business price for that customer through the same sales channel.
The move comes after an FCA report from October 2019 found that 6 million policyholders paid high prices in 2018, with many mistakenly believing their provider was offering a competitive price at renewal.
Graham Wright, UK P&C Pricing Product Claims and Underwriting Lead at Willis Towers Watson, said the industry will no doubt welcome the new measures, but added that the FCA’s report will raise as many questions as it answers.
“One of the biggest challenges for insurers and intermediaries alike is managing the implementation transition given current market competitive pressures, and therefore deciding how and at what point price changes should be made,” Wright said.
As well as outlining the proposed remedy and additional supporting measures, WTW noted that the FCA’s report appears to provide an endorsement for the use of complex modelling and price optimisation techniques.
Specifically, the regulator said it will continue to allow firms to compete by offering different prices and products to different consumers, reasoning that “stopping firms from price optimising completely could lead to less effective competition and worse consumer outcomes overall.”
In effect, this recognises that the complex practices of general insurance pricing necessary to balance insurers’ commercial objectives with fair individual customer outcomes, WTW said.
“As with any regulatory change, there will be winners and losers within the industry, and the winners will be those with the ability to flexibly adapt their pricing strategy,” said Stephen Jones, UK P&C Consulting Lead at Willis Towers Watson.
“Critical to any effective adaption strategy will be strong portfolio management and governance, the need for greater operational efficiency, the ability to report clearly on the adherence to the remedy and flexible deployment.”
The proposed measures from the FCA will no doubt require insurer and intermediaries to significantly adapt their pricing practices.
However, WTW argues that the scale of the change is not incomparable to what was required in 2012 when the ruling against the use of gender in insurance pricing was enacted.