Regulatory

In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for regulatory.

Key developments in 2021

The Financial Conduct Authority (FCA) delivered on the promise it made in its 2020/21 business plan to continue its work on delivering fair value in the digital age.

In May, the FCA published a policy statement (PS21/5) introducing new rules to improve the way general insurance markets function and to address the harms identified in its September 2020 consultation.  This development built on the FCA's final report on general insurance pricing practices (MS18/1.3) which found firms that were using complex and opaque pricing techniques for home and motor insurance to identify customers who were more likely to renew with them and increasing pricing for these customers at renewal, a practice which known as 'price walking'.  Some were also  engaging in practices that could discourage customers from shopping around.

The rules consist of a package of remedies in relation to:

• Pricing: a firm must offer a renewal price to a consumer that is no greater than the equivalent new business price that it would offer a new customer;
• Auto-renewal: firms are required to provide a range of easy and accessible methods for opting out of an auto renewal. The auto-renewal rules do not apply to private health, medical or pet insurance; 
• Product governance: enhanced requirement to ensure products offer fair value to customers.  In this context, fair value is where there is a reasonable relationship between the overall cost to the end customer and the quality of the products and services; and
• Reporting: enhanced reporting requirements in relation to home and motor insurance products. An extensive list of metrics concerning pricing and claims experience will be required to be reported to the FCA on an annual basis by 31 March in relation to the preceding calendar year.

These new rules aim to ensure consumers receive fair value and support the FCA's other work to deliver certain target outcomes, including the new Consumer Duty and its recently published guidance for firms on the fair treatment of vulnerable customers (FG21/1).

What to look out for in 2022

Expect further regulatory focus on fair value and improving customer outcomes, as the FCA published its second consultation on the new Consumer Duty on 7 December 2021 and expects to make new rules by 31 July 2022.

The FCA's current proposal for the new ‘Consumer Duty' involves three key elements.  Firstly, a "consumer principle", which reflects the overall standards of behaviour the FCA wants from firms and requires firms to act to deliver good outcomes for retail clients; secondly, cross-cutting rules, for example, requirements to act in good faith and to avoid foreseeable harm to retail customers; and finally, four outcomes which give more detailed expectations for the key elements of the firm-customer relationship.

This new duty would set higher expectations for the standard of care that firms provide to customers. The FCA notes that, for many firms, this will require a significant shift in both culture and behaviour, so they consistently focus on consumer outcomes, and put customers in a position where they can make effective decisions.  The consultation closes in mid-February.

Written by Matthew Griffith & Lauren Murphy.

Download our full Annual Insurance Review 2022 for more insights.