Trade Voice: The ABI's James Dalton on why GI pricing will be a priority in 2020

Around this time of year, thoughts of the New Year always bring a sense of optimism and opportunity, challenge and caution. With a new government and a probability that we will leave the European Union on 31 January, next year looks like it is set to start with more uncertainty than most.

We’ve been thinking about the Association of British Insurer’s general insurance business priorities for 2020 and, there are a whole range of issues and challenges for the industry to grapple with: from insurers’ use of consumer data; to implementation of the whiplash reforms; to pressing for more meaningful progress from the government on reform of the building regulatory framework post-Grenfell.

But during the first part of the New Year, one issue is set to dominate: pricing practices in the retail home and motor insurance markets.  

The Financial Conduct Authority is set to publish the conclusion of its market study into the pricing of home and motor insurance. When the FCA’s interim report was published in October the ABI said: “Millions of insurance customers get extremely good deals by shopping around regularly, but we agree that the household and motor insurance markets could work better for consumers who do not shop around at renewal. This is not an issue unique to insurance, but we are the only sector to have taken voluntary steps to address the issue and these are bearing fruit already.”

It will be crucial to ensure the right outcome – one that works for all home and motor insurance customers and continues to allow for competitive insurance markets that benefit the majority who shop around. But what does this look like? It is important to remember that:

• The scope of the products in the Market Study should not be extrapolated from retail home and motor insurance to other general insurance products, where consumer expectations and market dynamics are different.
• Any ban on auto-renewals would potentially lead to serious consequences for customers through inadvertent lapses in cover.  We have stressed that the consequences of customers’ cover lapsing can be very serious indeed and include them breaking the law by driving uninsured or breaching contractual requirements, such as mortgage contracts, so putting their home at risk. In addition, banning auto-renewals is likely to impact most negatively on vulnerable customers, who are currently benefitting from the protection auto-renewals provide.
• The remedies should be fully assessed and tested before being implemented, with a timetable for post-implementation evaluation set out. Consideration should be given to whether a phased approach is more appropriate.

Price differentials between new and existing customers are, of course, not unique to the insurance industry, and are a characteristic of competitive markets. But what is unique is that the insurance industry has been the first sector to actively tackle the issue, through our Guiding Principles and Action Points initiative launched with the British Insurance Brokers’ Association in 2018.

This is not simply a set of well-intentioned words: the ethos and approach to better outcomes for long-standing customers is being given board or senior management level priority and formally incorporated into firms’ procedures for determining the premium at renewal. Firms are reviewing their pricing approach for customers who have been with them for longer than five years and are assessing whether this approach delivers a fair outcome.

The ABI and Biba will publish a report in May that demonstrates how our respective members have sought to tackle excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers.

Few issues that the industry will have to deal with next year are likely to have a greater impact on the industry’s reputation, or how the retail insurance markets operate, than the outcome of the FCA’s Market Study. That is why it is a priority among priorities for the ABI in 2020.