Given a great deal of recent media coverage of the new FCA fair pricing regulations, we were able to provide an overview of the changes, as well as recent data around risks, opportunities, and projected changes to either the market or products as a result of the new regulations, which can be found below.
Overview of Current Changes
- The FCA's newly enacted rules for fair pricing in insurance include; a prohibition of 'price-walking' practices where prices are increased at renewal even when risk has not changed, a requirement that auto insurance policies offer easy opt out methods, and enhanced reporting requirements for insurance products.
- The rules and systems to enforce them will be required to be in place by September, and companies must be able to utilize them for renewal processes by the end of the year.
- The key goal is to ensure new and existing customer pricing is equal and 'ending a pricing partition that has persisted for years'.
- One source notes that loyalty penalties in the insurance industry were considered to be a 'systemic scam', and FCA rules came as a result of ongoing complaints from existing customers being up charged.
Risks & Opportunities
- The changes are expected to drastically change the way insurers will maintain and maximize profitability.
- Much of the shift in profitability strategy is projected to include smart data analytics, being used to both streamline operations and costs as well as improve understanding of customer needs.
- Customers may still benefit from shopping around for lower priced insurance, but because they won't be charged more just for renewal, companies will have to find new ways to differentiate from customers' existing insurance providers.
Projected Market Changes
- The rules are also projected to accelerate insurers' innovation and digital strategies, with an expected increase in new products and services and modern branding.
- Smart technology may also incorporate app-based rewards to differentiate, using an analysis of policyholder's behavior to determine what rewards are most impactful.
- Because it may be harder to aggressively compete via pricing, rewards and perks to drive customers to explore their insurance options may include cashback on fuel, discounts on repairs or maintenance costs of vehicles or property, and other rewards that help them reduce costs.
- Within the first hour, we have been able to provide a brief overview of the changes due to new FCA fair pricing rules, insight into the risks and opportunities in the market following the changes, as well as projections of how products and the market will change in the future.
- For a deeper dive into the risks, opportunities, and projected market impact, we recommend further research. Details on our recommended research paths have been provided in the proposals below.