The Financial Conduct Authority (FCA) has published a discussion paper (DP15/4) (https://www.fca.org.uk/static/fca/documents/dp-15-4.pdf) following the FCA’s market study on general insurance add-ons in July 2014. We reported on this market study1 , in which the FCA found that competition in the general insurance add-on market was not working well for many consumers. The FCA believes that ineffective competition has led consumers to pay too much for their add-on products, often receiving poor value for money. The FCA appreciates that the concept of “value” is not universal to all consumers and the quality or benefits of an insurance product are more complex and multi-faceted but nevertheless explores a range of options for introducing a measure of value in general insurance contracts in the discussion paper.
The discussion paper sets out a number of measures that could be adopted by the FCA to improve transparency and increase value across the entire general insurance market, including options for introducing value measures. The FCA states that it is committed to introducing measures that increase competition on value.
In the discussion paper, the FCA identified some value measures relating to the publication of claims ratios, which the FCA believes will incentivise firms to improve product value. The measures identified by the FCA are intended to be indicators of value rather than precise measures and include the disclosure of (i) the claims ratio, (ii) claims frequencies, acceptance rates and average payouts, and (iii) claims ratio plus acceptance rates. The FCA considers that the claims ratio, either on its own or with another measure, is preferable to a package of options, such as the claims frequency, claims acceptance rate and average claim pay-out package as the claims ratio covers most elements of value in a single figure and potentially allows a greater degree of comparison. It will be interesting to see the responses to the consultation, as the potential measures will be challenging to define due to different industry approaches to capturing or measuring the relevant pieces of information.