Insurers Need to Shift Closer to Clients

Nikki Ceko, Account Director, General Insurance at resourcing, outsourcing and advisory firm Huntswood, says the market has to be aware that regulatory pressure to treat customers fairly and ensure equitable pricing will continue.

For some time, the spotlight has been on the insurance sector with regards to renewal pricing. Firms have been found to have excessive price differences between new customers and renewal premiums that have unfairly penalised existing customers.

The Association of British Insurers (ABI) and British Insurance Brokers’ Association (BIBA) published its ‘Guiding Principles and Action Points for General Insurance Pricing (GPAPs) in 2018. It outlined the commitments that firms should be working towards to help address this challenge.

However, shortly after GPAPS was published, a Citizens Advice super-complaint was issued to the Competitions and Markets Authority calling on it to identify remedies and recommendations to put an end to the penalty paid by loyal and disengaged consumers. Insurance firms are currently awaiting the publication of the final FCA Market Study report, commissioned in direct response to the CMA super-complaint.

How far have firms come?

In the interim, the ABI and BIBA have reviewed the impact that these Guiding Principles have had on the market and its customers over the past two years, and the initial findings are a positive indication of the work insurers and brokers have already done to address the recognised issues with unfair pricing.

All firms surveyed have incorporated the GPAPs into their processes for determining renewal premiums and made the issue a Board or Executive level priority. Additionally, all firms surveyed had implemented a review process on renewal pricing, with 94% having a specific focus on customers who have been with them for five or more years. 94% of firms have also implemented processes to identify and review outcomes for vulnerable customers at renewal, whilst the remaining firms have plans to do so.

In total there were over 8.5 million pricing interventions across motor and home insurance, worth a total value of £641 million. Individual firms reported an average saving for each customer per intervention ranging between £40 and £150.

Over half of the above interventions have directly resulted from the GPAPs, meaning their introduction has resulted in better outcomes for 4 million existing customers.

More progress to come

It is clear that progress has been made to prioritise customers. However, the FCA’s interim report made it very clear that it is looking to implement some fairly drastic, customer-centric changes to rules, including restrictions on pricing practices, auto-switching of customers to better deals, autorenewal constraints and requiring clearer pricing transparency.

In anticipation of such measures, firms may wish to consider a continued evaluation of their pricing and distribution strategies to ensure products are providing value for money. Measures such as proactively reviewing back books to identify potential harm to customers caused by pricing practices and assessing how pricing complaints are identified and dealt with, will go some way to demonstrate continued progress to the regulator.

The industry is witnessing a shift towards the FCA playing a more investigatory role when it comes to fair pricing and the treatment of customers. It’s therefore important for firms to consider shifting to a more customer-centric model and prioritising value for money – something likely to not only be expected across the general insurance market, but across the whole financial services industry.

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