The FCA has been concerned about firms using pricing practices in home and motor insurance that allow them to raise prices for customers at renewal year on year (called the practice of ‘price walking’).
As a result of this, customers who shop around get a good deal whereas others pay higher prices. After considering a range of potential remedies, the FCA published the final report of their market study, which proposes two significant interventions:
- Firms would not be able to increase prices for renewal customers without also increasing the prices they offer to new business customers – this is effectively a ban on price walking.
- Firms would be required to periodically report data/information on the pricing and governance of their insurance products to the FCA, who will continue to monitor and supervise outcomes. The FCA may also decide to publish the data they gather from firms as a ‘sunlight remedy’ intended to promote transparency.
Paul Cullum, who leads Frontier’s financial services work commented:
“The FCA’s remedies represent a ground-breaking intervention that follows a trend towards more price intervention in the UK. Their proposed pricing remedy prohibits both 'price walking' (increasing prices for customers each year) and 'introductory pricing' (offering lower prices to attract new customers). This could lead to benefits for many longstanding customers for whom the market has not worked well in the past. But on the other hand, firms may feel restricted in their ability to offer new products and vary prices in ways they had done previously, which may lead to new pricing models emerging in the market. Going forward, the FCA would have to ensure that firms are still able to compete effectively, while also making sure that they’re able to identify and address any non-compliance to their rules. More generally, the FCA’s prohibition of introductory pricing could be a potentially significant precedent for many subscription markets, from magazines to broadband, that use discounts to attract customers and have been grappling with similar issues around higher prices being paid by longstanding customers.”
The FCA is seeking views on its proposals till 25th January 2021 and intends to announce the new rules next year after considering feedback from stakeholders.
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