Correcting Insurance Pricing in the UK

Customers and the industries we serve are always at the heart of the insurance business. For the most part increased digitisation and innovation in the industry has benefited both customers and shareholders - but not all of the emerging behaviours are seen as positive for customers.

Today, 28th May 2021, the FCA published their "final rules to address harm in home and motor insurance markets," outlined on the financial conduct authority page here. The phrasing is important here, with the regulator believing that current behaviour in how insurance is priced and sold in the UK is not in the best interests of the customers. Insurers are perceived to have been incentivising new customers with low prices but then increasing renewal rates significantly for "loyal" customers. Briefly, these new rules will require that insurers in the UK selling general insurance products and life protection products offer greater transparency in their pricing and do not overly rely on incentives to attract new business that result in increasing prices over time. There is, of course, significantly more detail in the report.

For those in the UK market revisiting their pricing in light of these rules, the following links may be of use:

• Stand-Alone Rating Engines: Global Vendor Spectrum
• Vendors of rating engines in the UK market (VendorMatch)

For those interested in the background, the catalyst for the study and resulting rules was a super complaint on the pricing in the UK brought by the Citizen's Advice Bureau. The details can be found on the Competition and Markets Authority Website. The UK insurance industry is not the only industry where a regulator has stepped in to change the behaviours in the market, however this evolution will be interesting to insurers in other markets where insurance is digitising.

The aggregator and price comparison website (PCW) phenomena emerged in the UK from the dot com boom, rise of affinity sales and link sharing schemes. We have covered the rise of aggregators and their impact in various reports. Examples:

• The Rise of Aggregators in Insurance: Ready or Not, Here They Come - 2017
  In this report we discussed how aggregators are emerging in other markets and their impact. This FCA ruling adds new context to the report.
• The Customer, Google, and UK Car Insurance - 2012
  In this report, we discussed the adverse affect the price comparison websites were having on the need for advice from customers and on commodotisation of the insurance products concerned. The potential interest of the regulator was also discussed.
• The Perils of Success: Rethinking the Online Insurance Landscape in Europe - 2010
  In this report, we discussed how the digital insurance landscape was evolving and the role of aggregators too.

Celent welcomes the intervention of the regulator to the benefit of customers and the market as a whole.