Competition in the general insurance add-on market is not working well for many customers, with many products available representing poor value for money. Following the FCA GI add-ons report in July 2014, the FCA has produced a discussion paper outlining its commitment to introducing measures of value in GI markets, and exploring a range of possible options.
These include requiring firms to publish:
- the claims ratio for products as a stand-alone value measure,
- a package of measures including claims frequencies, claims acceptance rates and average claims pay-outs, and
- the claims ratio plus claims acceptance rates.
The FCA wants to increase transparency in GI markets, incentivise firms to improve product value, and explore the case for an extension of any measure(s) to be disclosed to consumers in due course. Although it realises that the value of general insurance products is multi-faceted, and that designing a reliable indicator of value is therefore not easy, the regulator believes that these challenges make it even more important to work with industry and other stakeholders to introduce the most appropriate value indicator.
The regulator is clear that any value metric that is introduced should be seen as a general indicator of value rather than an absolute measure. However they do note that even some products that might be seen as offering poor value may be suitable for particular people, especially in niche markets.
The FCA believes that introducing any measure(s) of value would work in the following way:
- Firms would be required to report the value data to them. They would then publish the data in an easily accessible and comparable format, e.g on their website. This data would be accompanied by appropriate contextualisation to aid understanding.
- Users of the data could look up results for an individual firm across a range of products, or could compare data for a product across a number of firms.
- This data could be used by consumer groups and the financial press to highlight poor value products or firms, for example through consumer campaigns or warnings.
- The FCA could use the data as an additional source of intelligence in prioritising areas for further investigation or supervisory intervention.
- Individual consumers might consider the data in making their own buying decisions.
- Price comparison websites might incorporate the indicators into their own sales journeys.
The regulator’s current assessment is that the claims ratio (the monetary value of claims paid out as a percentage of premiums paid), either on its own or in combination with another metric, is the option that is most likely to meet the objectives of introducing transparency and creating incentives for firms to improve value. It can capture key aspects of the quality of a product and relates these to price in a single measure.
The FCA is keen to hear market views on the individual options, any alternatives, how to overcome the challenges associated with different options and how this would benefit consumers or impact on a firm’s business.
The discussion paper welcomes comments by 24 September 2015.