What the FCA new pricing practices rules might mean for brokers

Authored by Aviva

We asked UKGI’s compliance experts to give us their thoughts on what the new pricing practices rules might mean for brokers and what brokers might need to think about. This is what they told us:

"The FCA promised that it would issue the general insurance pricing practices Policy Statement by the end of May and, at lunchtime on the last working day of May (which just happened to be the Friday before the bank holiday weekend), they kept their word. At 200 pages it’s not a quick read, but this has been a long time coming and was expected.

Generally, the FCA has implemented its proposed rules as per the related consultation although there are some changes to reporting and timings as a result of over 100 consultation responses.

The ‘pricing remedy’ aims to protect home and motor insurance customers from so-called ‘loyalty penalties’, with new rules so that renewal quotes for home and motor insurance consumers are not more expensive than they would be if the customers were new customers, through the same distribution channel. There are three other remedies in relation to auto-renewal, product oversight and governance, and reporting (which contains some detailed reporting for insurance brokers if they are ‘price-setting intermediaries’).

Almost all brokers will be impacted in some way, not just those involved in motor and home insurance and their related add-ons. For example, things such as motorhomes and static caravans are included within motor and home insurances, which will impact the reporting. The FCA has for the first time given a view on what it calls ‘anti-avoidance measures’. Also, there are more detailed rules and guidance on the treatment of incentives (see this associated interesting paper), closed books, and how to deal at renewal with new risk information.

The FCA has introduced new rules on product governance which apply to all insurance contracts (other than large risks) about whether the products offer fair value and whether the firm is acting in the customer’s best interests. These themes resonate with the FCA’s proposed Consumer Duty and with the Regulator’s vulnerable customers guidance. Critically, the fairness and value of premium finance arrangements are also caught here.

The new product governance rules come into force 1 October 2021, the pricing and auto-renewal rules 1 January 2022, and the first reporting in September 2022 relating to the first half of 2022.

Firms should familiarise themselves with what the new rules require, assess their business models and pricing strategies, and identify whether they may be price-setting intermediaries for motor and home insurance. They should work with their product providers (including premium finance firms) to demonstrate that their products offer fair value, and with their software houses to ensure that their systems can produce the required reports."