The regulator has gone further than it has in previous interventions, argues former FCA figure
The FCA has taken “the nuclear option” in its remedies for unfair insurance pricing, according to Michael Sicsic, a former official at the regulator now working as a consultant.
”It’s as if they’ve considered the various protestations and nuanced counter arguments of the insurers about models and measurements and instead decided to take a bulldozer to the playing field,” Sicsic said.
The regulator plans to end price walking - the difference between new business and renewal - in a document released today.
”This will herald a complete overhaul in insurers’ business models. It starts with pricing, but has implications throughout. It is a shift from the FCA focusing historically on shopping around and pricing, now to a more holistic view of ‘value for money’.
”What is quite different compared to previous interventions and policies is the measures they have taken to ensure firms don’t avoid the intended outcome. For example they will require a formal attestation of compliance each year. They haven’t done that before,” Sicsic pointed out.
”They are also asking firms to report data in the same way each year and in a lot of detail. That will give them far greater data-driven regulatory oversight.”
Sicsic said it was also ”highly significant” that the FCA has extended the rules on product governance to all general insurance products in the market, which includes add-ons and premium finance pricing.
”They seem to have anticipated where firms might look to increase margin to compensate for price walking and made sure to close the door. It will require firms to implement a step change in their product governance process, as opposed to the incremental improvements to date.
”Whilst it is the nuclear option, it’s a scenario some insurers have been considering and scenario planning for quite some time.
”Some of the firms we support have already undertaken work to close the gap between new business and renewal pricing. It is now time to test the proposed new rules and reporting in order to smooth the impact on profitability during the transition from now to the implementation date.
”Those who have not yet begun that work will have a steep climb from here.”
Sicsic now heads his own boutique consultancy - Sicsic Advisory, and is the former head of supervision for the general insurance retail sector at the FCA.