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Insurers have much to consider in wake of FCA shake-up, says KPMG

Sep 23
 
Tags: KPMG LLP
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Insurers have much to consider in wake of FCA shake-up...

New proposals put forward by the Financial Conduct Authority (FCA) to promote fair pricing in the insurance industry could have some unintended consequences.

That is according to David Miller, financial services partner at KPMG, who has highlighted the need for insurers to take a detailed look at the measures.

The FCA is working to ensure existing motor and home insurance customers are not charged more than new customers at renewal.

While it is clear this would be a good thing for consumers in the long-term, there’s a risk of seeing prices going up for new customers.

Bringing these new measures into effect will impact the whole insurance ecosystem, as there will be less incentive to shop around.

Insurers must, therefore, analyse their distribution strategies and adapt to take the proposed changes into account.

Mr Miller said: “This is a very significant intervention aimed at improving customer outcomes, with a number of the remedies going beyond the motor and home insurance.

“This leaves insurers with much to consider regarding some of the fundamentals of how they do business.”

The measures put forward by the regulator come in the wake of its October 2019 report, which found that six million policymakers paid inflated prices in 2018.

Had they paid for their actual risk, they could have saved £1.8 billion, highlighting the need for a shake-up of the system.

The techniques used by insurers to work out which customers are most likely to renew their policies are complex and often result in people believing they are being offered a competitive rate for renewal when they are not.

Some insurers also discourage shopping around by making automatic renewal hard to cancel or not putting the lowest prices forward to regular switchers.

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