The UK’s Financial Conduct Authority (FCA) has today published an interim report in its market study of general insurance pricing.

The market study is unusually narrow in scope, with a focus solely on pricing practices. The FCA has been concerned for some time that insurance pricing models mean customers who auto-renew and do not regularly shop around pay higher prices.

The FCA has set out a range of potential options to reduce prices paid by some customers and encourage switching. These include:

• limiting practices that allow providers to charge higher prices to customers who do not switch;
• automatic switching of customers who pay higher prices to lower priced products with the same cover;
• requiring information to be given about alternative deals and identifying customers who may need help switching to a better priced product;
• a ban or restrictions on the use of auto-renewal of insurance policies; and
• ensuring it is as easy to exit a contract as it was to sign-up.

Some of these options would be a significant intervention by the FCA in the way that insurance prices are set.

Given how many options are on the table the challenge the FCA now faces is determining what set of options to pursue. In doing so the FCA will have to grapple with the complexities of insurance pricing and the potential for unintended consequences. Such consequences might range from reducing competitive pressures in the market if pricing reform reduces the incentive for customers to shop around, to the risk of some providers gaming any new rules that are put in place.

Frontier regularly advises on issues relating to financial services in the UK and Europe.

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