Data and analytics firm believes that there is ‘good evidence’ that FCA’s fair value regulations have affected insurers pricing strategies already 

The FCA’s new pricing rules could make winning new business harder for insurers by restricting their ability to undercut rivals on price comparison websites (PCW).

This is according to data and analytics firm, GlobalDatam it noted the difference between the lowest and highest average of the ten cheapest quotes provided by the four leading PCWs has diminished significantly in 2022 since the regulator’s measures.

On 1 January the FCA enforced new rules which eliminated price walking – the practice whereby new insurance customers are offered a more competitive rate compared to those that are renewing policies to ensure longstanding customers are treated fairly. 

Meanwhile Global Data predicts that higher costs in the mandatory motor insurance line will further squeeze consumer finances.

Benjamin Hatton, insurance analyst at GlobalData, said: “Prohibiting dual-pricing practices, whereby an insurer charges new customers reduced premiums before increasing them gradually upon renewals, has limited the extent to which providers can undercut rivals in order to win new business.

“Over time, insurers must increase operational efficiency and improve claims management – keeping claims costs lower in order to maintain a healthy bottom line.”

Although it is early days for the FCA pricing rules, GlobalData believes that there is good evidence that it is beginning to affect insurers’ pricing strategies.

Hatton added: “Claims management, cost-effectiveness, and operational efficiency will gain even greater significance moving forward as price increases become less feasible for insurers.”

Motor and home price disparity drops

For motor insurance, GlobalData found that price disparity has fallen from 45.3% in 2020 to just 12.3% in 2022.

GlobalData PCW motor 2022

Hatton said: “For motor insurance customers, this provides yet another growing cost to add to the headache of the cost-of-living crisis.

“Consumers will be disappointed to see their motor insurance premiums rising at such a difficult time financially, especially with inflation currently at 5.4%, energy bills set to increase by over 50% for millions in April, and the looming rise in National Insurance contributions.”

GlobalData PCW motor 2022

On a similar note, for home insurance GlobalData also found that price disparity in the home line has fallen from 44.5% in 2021 to 9.2% in 2022.

Providers are up against tightening combined ratios including a negative underwriting result such as paying out more in claims than collecting in revenue in 2020 and waning demand driven by generation rent.

GlobalData research revealed that the average quotes for home insurance are slightly lower in 2022 than previous years.

Hatton added: “Insurers may fear that too high a rise in home insurance premiums will drive consumers away from the market altogether.

“This is especially true of low-income households that will feel the financial strain of 2022 more significantly than other demographics.”

It predicts that consumers will become more averse to price increases in optional products, opting for cheaper alternatives or forgoing the product altogether.