FCA is undertaking diagnostic work to check pricing practices work well for customers
Well run brokers have nothing to fear from the Financial Conduct Authority’s (FCA) ongoing diagnostic work on dual pricing, according to industry experts.
However, they have warned that the delay in publishing the findings should not be confused with a belief that the regulator has taken its eye off the ball. Nor is there consensus that there are not issues to overcome.
The FCA first proposed what it termed “discovery work” on pricing practices in its Business Plan for 2017/18. The move followed on from its research into big data in retail general insurance and feedback statement published in September 2016.
Originally the first step of the analysis of how firms’ pricing approaches and rating factors work was due to be completed by the first quarter of 2018. Yet the Business Plan for 2018/19 published last month flagged that the “diagnostic” process would continue.
Still on the agenda
Norman Hughes, director of Compliance Management Services highlighted that the topic had been mentioned to prove that the regulator had not forgotten about it.
“The work is taking longer to complete than was anticipated,” he said. “The current regulatory agenda is as full as it has ever been and resources have to be spread across a number of different areas.”
What we do know is that the regulator was focusing on household insurance customers. The FCA has stated that it would pull together key themes, assess if it needed to act to ensure insurance pricing practices support a market that works well for customers and publish details in due course.
Insurance Age understands that this pilot scheme could ultimately lead to overlaps into other areas. However, with nothing published so far, the FCA declined to comment on whether dual pricing in commercial lines would come under the microscope.
Ann Peel, technical consultant for Insurance Compliance Services, noted that at the moment the FCA would be looking at samples of policies and spreadsheet data and possibly interviewing market participants.
“They keep it very close to their chests, we don’t know exactly how they go about this,” she observed. “They are looking to see if there is a problem that they need to address rather than already having identified a problem.”
According to Hughes household was a sensible place for the FCA to have begun the process and any future read across would start with motor. “They are interested in the consumer insurance market as that is where the differential pricing is most prevalent,” he reported.
Both experts were of the opinion that it remains to be seen if commercial could end up being targeted. Peel stressed that the situation would only develop if issues had been found but admitted she “wouldn’t be surprised if they look at small
SME business like the trade packaged policies”.
FCA 2018/19 Business Plan on existing customers
If competition is working well in a market, it should not overly disadvantage existing customers over new customers. While many firms have made progress in putting customers more firmly at the centre of their business models, they need to further improve both competition and their standards of treatment for existing customers.
Alec Finch, non-executive director of AFL Insurance Brokers, which deals mainly with mid-market and corporate cover, concurred in part. “We are not seeing it [dual pricing] on commercial business,” he commented.
“I wouldn’t rule out the possibility of dual pricing on some of the highly commoditised lines.”
He argued that with so much choice on offer in the market to SME insurance buyers “it is very difficult to see where an enquiry from the regulators will serve any purpose”.
Nothing to fear
If there were to be an investigation Finch said the firm would have absolutely nothing to fear.
Similarly, Hughes reported that he was “not sensing a fear factor on commercial” from brokers if any review were to happen. And Peel confirmed: “Brokers have to shop around for a good deal and if they are doing their job properly they shouldn’t have anything to worry about.”
However one broker, who declined to be named, indicated that there was an issue to address and was adamant that any investigation would find dual pricing in commercial lines. “If you go to an insurer with a new piece of business the price will be lower than for a client who has been with them for many years,” they claimed.
And the anonymous broker highlighted that with insurers having relationships with managing general agents the situation was even more complicated. “There’s not just dual pricing there’s more like quadruple pricing,” he concluded.