Despite potential implementation challenges, the trade association’s director general is ‘very hopeful’ that the proposed ‘road map’ with the FCA will solve the loyalty penalty ‘once and for all’

The four-month implementation period proposed by the FCA for insurers to action its price walking remedies is “a joke”, said Huw Evans, director general of the ABI.

Speaking at the trade association’s annual conference, this year held virtually on 23 February, Evans emphasised that the implementation timetable “has to be realistic” and that the industry would need at least a year to put in place the FCA’s proposals.

He said: “The timeline has to be realistic. Four months is a joke – we need a year from the point at which the rules are published to do this properly.

“Nobody wants this reform to blow up on day one. We need a year to implement it properly and do all the proper consumer testing to be sure the systems work on day one.”

Last September, the FCA published its General Insurance pricing practices market study report, asking the industry to deliver feedback on its proposed measures to tackle price walking – where long-standing customers are offered a less competitive renewal price than new customers – by 25 January 2021.

The FCA intends to publish a policy statement in quarter two of this year responding to the feedback provided. The confirmed new rules within this document are then scheduled to come into effect four months after the publication of the policy statement.

Winners and losers

Lengthening the implementation timeline is not the only thing Evans thinks the industry needs to consider for the successful implementation of the FCA’s plans.

He also believes “it needs to apply to all parts of the market” as “insurers are not the only people that sell insurance products”.

Price comparison websites and brokers [sell insurance products] every day of the week and this must apply as equally to their bit of the market as it must do to the insurance market,” he added.

Plus, communications with customers will additionally need to be carefully reviewed as “not every customer is going to be a price winner”.

Evans explained: “We need an honest conversation about how not every customer is going to be a price winner out of this reform.

“It will be a healthier system, it will be a fairer system, but if you’re a customer at the moment that spends hours flipping your insurance policy every year looking for a discount, you are less likely to do well out of the system than somebody who sticks with their insurer for four years under the current system.

“That will hopefully reverse, but there will be some losers as well as winners from this reform and it’s really important that the regulator, as well as insurers, are open and honest with customers about that and say that this will make for a fairer and healthier system overall in the long run.”

Long overdue

Despite these potential challenges, Evans said that general insurance pricing reforms are “long overdue”.

“I don’t think we could have done it any sooner. It always needed regulatory intervention because it would have been anti-competitive to get a load of insurers in a room to try and work this one out,” he continued.

Speaking to session chair Aasmah Mir, a broadcaster at Times Radio, Evans also touched on how customers should be encouraged to view value in insurance products as more than just their price.

He said: “Until we sort out the loyalty premium problem, which I think sits at the heart of a lot of distrust of customers and insurers, then I think we can’t move on to a broader conversation about what value looks like.

“What do you want in your insurance policy and what are you prepared to pay for it? These are sensible discussions you can have with customers both at a macro level and at an individual level, but it’s very hard to do that when the bottom line is that many customers feel like their loyalty isn’t rewarded and that the industry is skewed towards people who change their insurance policy every year, irrespective of whether they’ve had a good service or not.

“I am hopeful, very hopeful that we have a road map with the FCA to sort that issue out once and for all and that will be the foundation on which we can then start to have a more mature discussion with customers around overall value.

“In insurance, as in life, you can buy basic products, you can buy medium level products and you can buy premium level products. You get roughly what you pay for. We [will be] in a position to have more of that discussion once we get GI pricing in a better place.”