At the end of May, the FCA released a policy statement setting out new practices around pricing. The purpose of the statement was to improve the way the general insurance market functions, with a particular focus on gradual premium increases, otherwise known as “price walking”. This is also set to change how renewals are considered from the beginning of 2022.
Most insurers and insurance distributors already implement a system within their renewal process that notifies policyholders of the premium paid last year, however under new regulation, coming in to force next year, there may need to be further guidance provided to policyholders on fair value. The statement outlines a long list of factors including “type and quality of services provided to customers”. Firms will also be required to use a new prescribed metric to consider whether the price has been fairly set.
Even though these rules mainly cater for non-investment products in the general insurance market; home and motor insurance, they do still require consideration for commercial insurance products. Contracts for large risks are excluded from the scope of the statement (both the new and existing rules) as they are more likely to have insurance and legal advisors representing them. The FCA do however expect there to be material benefits to applying the governance rules to smaller risk commercial insurance, cover for SME’s for example.