Home insurance likely to be most affected, but big reduction in switching could be muted
The insurance industry has been warned of price volatility ahead of next month’s pricing reforms.
The FCA-led reforms, which will mean insurers and brokers can no longer offer low prices on new business and then hike up renewals, will finally come into effect in 2022.
“There will be a period of volatility around pricing as insurers work out what the new market price is going to settle at,” said Paul De’Ath, head of market intelligence at consultancy Oxbow Partners.
Premium rises unsustainable
The reforms are likely to have the most impact in the home insurance sector.
However, De’Ath said any big rises in home premiums would likely be unsustainable
He said any big jumps would eventually “be competed away by those [companies] with more efficient business models”.
He believes there will be no big bang moment, with a sudden fall in switching.
De’Ath pinpointed the keenness of those who shoparound, being aware of the changes and still making plenty of effort to find the best deals.
“Over time, there could be some reduction in switching,” he added. “But that will be a slow burn over a number of years rather than any kind of big bang.”
Jason Windsor, Aviva’s chief financial officer, anticipated a “bumpy” first quarter to the year.
Speaking to the Financial Times, he said the reforms would result in other factors, such as customer service, becoming more important in winning over customers in the personal lines space.