Context
In May 2021 the FCA published its PS 21/5 on General Insurance Pricing Practices. Following the publication issues were raised by various stakeholders which has resulted in the FCA issuing a further Policy Statement which includes various amendments and clarifications as mentioned below.
Alongside this most recent Policy Statement the FCA has also published a set of Q&As.
Key points to note
The notable changes made by the FCA within this new policy statement are:
To clarify the application of some of the rules to firms that give discounts or other incentives to customers
- The FCA has amended the rules to clarify that, in circumstances where renewal prices are set by insurers but cash or cash equivalent incentives are then offered by the intermediary, the intermediary will be captured within the pricing rules as a price-setting intermediary). This means that where cash or cash equivalent incentives (for example retail vouchers) are offered by the intermediary for new business customers they must also be reflected in the Equivalent New Business Price (ENBP) when put forward to a renewing customer.
To clarify the application of the reporting rules to intermediaries that rebate commission
- The FCA is amending the rules to clarify that, for reporting purposes, commission‑rebated business counts as gross‑rated business. This means only the insurer is required to report data. Under these changes the FCA has also introduced a requirement for price-setting intermediaries (which is what an intermediary will be if it is typically commission rebate to secure business) to notify the FCA where over 25% of either the intermediary’s home or motor sales include commission rebating.
- Currently the FCA is working on the attestation which any price setting firms will be required to submit under the rules. The form will also allow firms to make any necessary notifications about commission rebating.
To amend the definition of a ‘renewal’. This will alter the way in which pricing and reporting rules apply to firms
PS 21/5 introduced a broader definition of “renewal”. Following interaction with stakeholders the FCA now views that definition as potentially problematic. Within the new definition the FCA has clarified that:
- Where an existing customer actively buys a policy with the same firm through a different channel or distribution arrangement firms should treat this as new business rather than renewal business. This is a key development.
- However, where firms actively move a customer to another channel, distribution arrangement or to a different policy (of a similar type – e.g., re-broking at renewal) at the lapsing or expiry of an existing policy then they should continue to treat these as ‘renewals’ for the purposes of the pricing and reporting rules.
To clarify the operation of the transitional rules
The auto‑renewal rules come into effect on 1st January 2022 with transitional provisions in relation to the disclosure elements extended until 17th January 2021. Where a firm takes advantage of the transitional provisions, it must provide the relevant disclosures for policies entered into during the transitional period.
Firms must take this action in relation to communications made during the transitional period that do not comply with the disclosure rules. The rules as currently drafted are unclear about whether this includes policies that have not been entered into during this period, e.g., where renewal notices sent out during the transitional period are for policies which have renewal dates outside it.
The FCA is therefore amending the rules to make clear that, where a firm uses the transitional provision, it must take retrospective action to provide the required disclosures for all communications made during the transitional period that do not comply with the disclosure rules in the new ICOBS 6.2.6 R and ICOBS 6.5.1 R, irrespective of when the contract concludes.
Next actions
We will be issuing a bulletin as soon as possible. In the meantime, firms should assess their business models, identify where they may be deemed to be price-setting intermediaries for motor and home insurance, and to give some consideration as to whether they have been (even unintentionally) price-walking customers. Where firms will need to complete information in the required reporting, they will need to start to collect the data from the beginning of next year.