Earlier this month the Financial Conduct Authority (FCA) released its policy document: Increasing transparency and engagement at renewal in general insurance markets. Aimed at encouraging consumers to shop around rather than opt for automatic renewals at the end of a policy, the document follows on from their December announcements around the same theme and a subsequent period of consultation.
All well and good.
Until you start to read the fine print.
The FCA point to a commitment to giving consumers a transparent means by which to find the best deal on their respective insurance policies. And by best deal, the inference clearly seems to mean – cheapest.
Consider the following wording the new policy wants on renewal letters to customers of 5 years or more:
“You have been with us for a number of years. You may be able to get the insurance cover you want at a better price if you shop around”
– source: Financial Conduct Authority
Add in the fact that there will also be a requirement to disclose previous years’ premiums and you are creating a market that is heavily influenced by price, with the notion of what policy is best suited to an individual – or even the level of service you may receive from a broker – at best given a token mention.
Steve White, BIBA’s CEO, was certainly less than complimentary over the FCA’s proposals. In an article with Insurance Age, he made the point that the proposals could drive consumers so far towards selecting on price that itself may result in negative outcomes.
And who can blame him?
One of the themes that BIBA have stressed in recent times, in both commercial and consumer insurance, is the need to combat situations of underinsurance. By encouraging consumers to look for cheaper, is it not opening the door to situations where consumers are purchasing a policy which might save them money but, in reality, may not offer the level of cover they require?
OK, the FCA document does address this issue, of a sort, suggesting that renewal documents also ask the question about whether the policy ‘still’ meets their cover needs. However, the emphasis remains price driven; encouraging consumers towards the best deal, with little mention of best service.
Of course there’s nothing wrong with consumers shopping around for the best insurance. But that surely should mean, at least to some extent, that they seek some form of consultation or advice as the insurance that best suits both budget AND need.
The FCA’s new proposals threaten to push consumers further towards price comparison as far and away the overriding factor. As though all policies are created equal and can be easily compared by looking at a list and choosing the cheapest. As you would when selecting an energy provider.
The problem with this is that insurance is a completely different commodity to energy, controlled by very different market conditions. Encouraging consumers to go cheaper puts pressure on insurers and brokers to offer cheaper premiums in an environment where claims are increasing. Premiums must surely be set in line with the level of claims. To do otherwise threatens to place a heavy burden on financial liquidity – does it not?
Add to that the additional costs attached to making the requisite changes to policy terms – by April 2017 – alongside the other changes that need to be implemented such as the Insurance Distribution Directive, increases the challenges brokers will have to face up to.
When even a price comparison spokesperson is critical of the policy – claiming the announcement has failed the industry – then questions need to be asked about whether this is the correct approach to helping the customer towards a better deal of added value.