The FCA is consulting on proposals to introduce measures of value in general insurance (GI) markets, with the intention of increasing competition on value and incentivising firms to improve value. It is considering three potential measures:
- the claims ratio as a stand-alone value measure;
- a package comprising claims frequencies, claims, acceptance rates and average claims pay-outs (but not the retail premium); and
- the claims ratio plus claims acceptance rates,
but has asked for suggestions on alternative or additional measures of product value. The claims ratio, either alone or in combination with another metric, is the FCA’s current favoured option.
If introduced, the FCA would require firms to report value data to the FCA, with the FCA then publishing the data in an accessible and comparable format, e.g. on its website, with “appropriate contextualisation”.
These proposals stem from the FCA’s GI add-ons market study and the lack of commonly available measures to assess the value for money of GI products. However, while that market study was confined to a limited set of add-ons, the FCA is now considering introducing these value measures across the full range of consumer GI markets, including motor, home buildings and contents, travel, pet, extended warranty, breakdown, private medical, personal accident, payment protection, and mortgage protection insurance. This is an illustration of the potentially wide-ranging impact of FCA market studies.
The FCA says it has “not considered ‘peace of mind’ as part of the value measures discussion”, in particular as this is “highly subjective” and can be “misplaced”.
The FCA wants to use transparency as a regulatory tool and regards publishing this data as “crucial to enable firms to compare themselves with their peers and address issues of poor value”. It makes a comparison with its reporting of complaints data, which it says has led firms to focus on complaints handling and improvements in the underlying products and management of complaints.
The FCA has asked for comments on its Discussion Paper by 24 September 2015. Those involved in underwriting, selling or distributing general insurance may well want to comment on the FCA’s proposals by that date. The FCA acknowledges that choosing the right measure(s) and designing them properly will be challenging. However, the insurance industry may be able to identify problems with or arising from the FCA’s proposals. If so, now is the chance to make this clear to the FCA.