CII reacts to FCA proposals to tackle concerns about general insurance pricing

“The FCA’s solution – to require firms to charge the same for existing as new customers - is very much in line with what customers have been telling us they want.

“Normally, we would be concerned about prescriptive regulatory intervention on charges, because this often leads to unintended consequences. However, in this case, well-know behavioural biases (choosing the best option in the short term, rather than the best option in the long term and favouring the status quo) mean that there are competitive pressures on insurers to engage in price walking – as many firms do in several key markets, including utilities - even if they would prefer not to.

“As a result, we think the FCA proposal to ban price walking, along with the product governance proposals that it has suggested, are reasonable.

“There may be times when, for example, the nature of a risk changes, and an insurance company may need to reprice existing customers, while at the same time wanting to set a lower price in order to continue to attract new, lower risk customers. In this way, it would be trying to retain cover for as many existing customers as possible, while also providing a competitive rate for new customers, not because of price walking, but because of a genuine change in the nature of the risk. It may be useful for the FCA to consider producing governance standards that would allow firms to do this with proper regulatory supervision, without breaking the spirit of the rules.”