As part of the FCA’s continuing drive to protect consumers, the FCA recently published a policy statement (PS16/21 – Increasing transparency and engagement at renewal in general insurance markets) reporting on the main issues arising from a consultation in 2015 (CP15/41) and confirming the final rules and non-handbook guidance that will be published in due course.

Background

These proposals came about following the FCA’s concern that pricing practices at the point of renewal in general insurance were resulting in the poor treatment of consumers.

Proposed changes

CP15/41 addressed the FCA’s concerns about levels of consumer engagement and the treatment of consumers by firms at renewal, and the lack of competition that results from this. In December 2015, the FCA proposed new rules across all personal lines general insurance requiring firms to:

  • Disclose the previous year’s premium at each renewal.
  • Include text to encourage consumers to check their cover and shop around for the best deal.
  • Give an additional prescribed message of encouragement to shop around to consumers who have renewed with them four consecutive times.

Further, the FCA proposed guidance on how firms could maintain records to demonstrate compliance with these measures, including by keeping a record of premiums. Finally, CP15/41 set out non-handbook guidance to help firms meet their obligations towards consumers at renewal, e.g. detailing the importance of issuing clear communication to consumers at renewal, and how firms should treat consumers who want to switch or cancel.

Although the guidance applies only to insurers and intermediaries of general insurance products to retail consumers, the final guidance encourages firms “to consider whether any of the issues raised by us about retail consumers would also apply to commercial customers and whether there is benefit to making wider changes.”

FCA response

In its policy statement, the FCA confirmed that, in the light of the feedback provided, the final rules and guidance will be made with the following changes incorporated:

  • Firms must show the previous year’s premium in renewal notices. Where a consumer’s circumstances have changed during the course of the policy, firms must give an annualised premium reflecting any mid-term adjustments (inclusive of any administrative fees and charges).
  • The previous year’s premium and the renewal premium must be presented in a consistent format, so that they are comparable. For example, it would not be acceptable to compare the total annual cost of the previous year’s premium with the cost of the monthly installments of the other year’s premium. In addition, the total annual premium must always be disclosed.
  • For the first three renewals, firms are free to choose the wording they use to encourage customers to “shop around”. However, there is a prescribed form of wording for the fourth renewal and any subsequent renewals: “You have been with us for a number of years. You may be able to get the insurance cover you want for a better price if you shop around.”
  • The “shopping around” disclosure must encourage customers to consider the scope of their cover, as well as the price of the policy, as can be seen from the prescribed form of wording which is set out above.
  • Policies of 10 months or more will be caught by the new rules and guidance, in order to reduce the risk of firms avoiding the FCA’s proposals by simply providing shorter policies.
  • The proposed implementation deadline will be extended by three months to ensure that all parts of industry have enough time to implement the FCA’s proposals.

Next steps

Firms will be required to make the necessary changes to their renewal communications by 1 April 2017.