On 10 August 2016, the Financial Conduct Authority (FCA) published Policy Statement PS16/21: 'Increasing transparency and engagement at renewal in general insurance markets – feedback on CP15/41 and final rules and guidance'. The policy statement contains new rules that will be added to the Insurance: Conduct of Business sourcebook (ICOBS) from 1 April 2017.
This note explains the background and objectives of the new rules, and our high level view of their likely effect.
The new rules set out disclosure requirements that will apply upon renewal of certain general insurance policies within the scope of ICOBS. The obligations in the new rules may apply to both insurers and intermediaries, depending on the particular arrangements or sales path.
The FCA has been concerned that the way in which policies are priced at renewal may result in poor customer outcomes. Customers may not understand the price they are paying for their renewed policy, and longstanding customers may pay more than new customers for the same product due to this lack of understanding and inertia when it comes to shopping around at the point of renewal.
In December 2015 the FCA published a consultation on new rules and guidance to tackle these issues. The draft rules and guidance have been reviewed in the light of responses received to that consultation; PS16/21 sets out the finalised guidance.
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Other key considerations
The FCA also published non-Handbook Finalised Guidance FG16/9 (Finalised Guidance) to supplement the above rules. In the Finalised Guidance, the FCA has flagged 'auto-renewal' policies as requiring particular consideration by insurers to ensure that their customers are given sufficient information about how the auto-renewal term will operate, and what customers should expect on renewal, as well as the timing issues regarding what 'in good time' means, as mentioned above. There has been criticism from consumer groups that the FCA has not gone far enough in this area.
The FCA also reminds firms that once the policy has been renewed, the customer will have (unless an exception applies) the standard 14 day cancellation period, and information about this right must likewise be provided to them 'in good time' before the conclusion of the contract.
Another question posed is whether it is fair to expect customers to remember all the information that was provided to the insurer when they first took out the policy: firms should consider whether it would be appropriate to remind customers of this information at the time of renewal. This information reminder may be more relevant for certain types of insurance policies, for example annual travel insurance policies.
The Finalised Guidance also specifically calls out firms' obligation to comply with rules about fees and charges and to treat customers fairly in this respect: the renewal disclosure should make clear any additional fees and charges.
The rules are effective from 1 April 2017, by which time firms must ensure that they are fully compliant with the rules. This date has been extended by 3 months from that originally proposed, to give firms extra time to prepare for the transition. However we recommend that if possible, firms seek to ensure that they are compliant in advance of that date, so that appropriate disclosures are sent to customers whose polices come up for renewal from 1 April onwards.