The FCA are making BIG changes to the way insurers and insurance distributors will have to review all of their policies and models. The FCA are planning on scrapping the idea of ‘price-walking’ (referring to when new insurance customers receive more competitive and cheaper premiums), as this contends the FCA’s objectives for a fair and competitive marketplace.
After releasing the final rules in May, the FCA are expecting a swift turnaround to most models with some rules being implemented as soon as 1st October 2021.
The FCA love their acronyms, and there is a new big boy in town – ENBP. This is the ‘equivalent new business price’ or ENBP for short – the price a new customer would receive upon the start of their contract. The ruling from the FCA is that existing customers who renew their policies are not to be charged more than the ENBP. Any cash or cash-equivalent incentives will need to be reflected in this new ENBP – this includes points in loyalty schemes, vouchers and monetary/percentage discounts on premiums. Going forward, firms will have to get creative on getting the balance right between the ENBP and the price for renewing customers (ensuring their creative practices are compliant of course). They might think to simply increase the new price, which would inherently increase the price they could give to renewals, but this could cause a general price increase and scare customers away altogether – it’s a very fine line!
Changes do not stop at the ENBP. There are numerous new reporting requirements including ‘attestation’ – the confirmation that a firm is continuously keeping in line with pricing model requirements. This will need to be undertaken by a senior manager (if a firm is part of the SM&CR, or a director (if not part of SM&CR), and will need to be monitored regularly. Although there is no specificity on what ‘regularly’ means just yet!
This is just the tip of the iceberg! The scope of rules for product governance has also widened. Product governance rules will be applicable to almost all insurance brokers. The rules will concentrate on whether the products offer fair value to the customer and if the firm is acting in the customer’s best interest, including a range of new metrics to determine this.
The silver lining is that the FCA really do care for consumers. Estimates show that in 2018, 6 million motor and home policy holders would have saved £1.2 billion, had they paid the average price for their actual risk.
A word of wisdom to those working in the insurance industry. To ensure your business stays on top of the all the coming regulatory changes, make sure you have invested in a competent compliance team!
Ammad holds a BEng in Biomedical Engineering from City University and has recently joined the FinTech Compliance team. Ammad is currently studying towards his CISI Level 6 Diploma in Investment Compliance.