The FCA has said that the benefits of the proposals would outweigh the financial cost to the industry
The ABI has warned that any new FCA regulatory requirements must “provide genuinely useful information” if they are to add value.
FCA documents estimate that the one-off industry cost of its proposals for insurers to report varied value measures for 33 different general insurance products could be up to £11.3m.
After that there is an estimated annual cost to the industry of between £1m and £1.4m.
The FCA itself will incur a further £300,000 cost in setting up the system to process and publish the reems of new data being received.
In order to be net beneficial, the FCA has reported in its cost benefit analysis that the new regulations would have to generate £2m-£2.8m of savings per year.
Value for money
The reporting requirements have been proposed to ensure customers are getting value for money on the general insurance products they buy. But James Dalton, director of general insurance policy at the ABI, said that its members “constantly strive to provide the best possible value for money for their customers in what is a highly competitive market”.
Dalton added: “We all know that too much information does not increase customer engagement with the products they buy, so it will be important to ensure that any new data requirements provide genuinely useful information that actually adds real value and improves customer outcomes.”
Of the ongoing costs 51% of this was taken up by IT costs. Other costs identified included training and other staff costs, governance costs and manual collation and data checking costs.
But the FCA says customers will benefit through being able to compare products against a metric other than price, and encourage competition among insurers to improve their products against those of rivals.
The regulator has previously highlighted concerns that customers do not get value for money in a GI add-ons market study. For personal accident and GAP insurance it found only around 10-15% of premiums were paid out in claims.
In its 2018 sector view it said that consumers may not realise a product is poor value until they need to make a claim. By focussing only on price, it said consumers may buy products with little value to them, or that they are very unlikely to make a claim on.
In its cost benefit analysis, the FCA said that without intervention “consumer harm/outcomes would remain unchanged”.
And it went on: ”We have identified several potential benefits from the collection and publication of value measures data, including improving market transparency around value and the resulting incentives to compete by improving product value and quality.
”While we have not quantified the benefits, we expect that they will be higher than the estimated costs.”
To make the required savings to be net beneficial, it would equate to a 1.1p-1.5p saving per GI policy on average, and 0.01% of the estimated UK retail GI market.
And Lee Griffin, founder member of GoCompare, said he welcomed the FCA’s consultation.
“While product and price information are more readily available and transparent than ever before, the claims side of the ‘value equation’ has remained in the dark for most policyholders,” Griffin said. “People should know if a product is potentially less likely to pay out on a claim or if there has been a higher than normal level of complaints about claims.
”They want to make an informed choice but right now they just have to trust that their insurer will be there for them when the worst happens. Key to this is the availability of data – if it was available now, we’d already be showing our customers the claims pay-out and experience information.
“We have to look at this in conjunction with other initiatives running at the moment – for example, the CMA’s work on loyalty penalties, which result in millions of existing customers paying more than new ones for the same product. Together, these two initiatives have the potential to transform the insurance landscape and significantly improve value for money for customers.”
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