FCA publishes proposals to tackle ‘loyalty premiums’ in UK insurance pricing



On Friday, the FCA published its market study review into pricing practices in the retail general insurance sector (focused on household insurance).


The FCA launched its market study into insurers’ pricing practices in home and motor insurance in October 2018. The purpose of the study is to investigate potential harm to consumers from insurers pricing practices, in particular the price gap between what is offered to new and existing customers.

The FCA have investigated pricing practices across 17 insurers, 12 intermediaries, 4 price comparison websites (‘PCWs’) in personal lines home and motor in the UK.

Click here for the Oxbow Partners analysis of the proposed remedies.
Click here for a summary of the proposed remedies.


While many consumers shop around to find the best deal, the FCA found that in 2018 six million consumers were negatively impacted by insurers’ pricing practices. Some of the headline findings are as follows:

  • A total saving of £1.2 billion would have been made by the six million consumers paying high or very high prices in 2018 (i.e. £200 per customer), if they were to pay the average market price
  • Of the 6 million customers, 1 in 3 showed at least one characteristic of vulnerability, such as lower financial capability
  • Consumers with lower incomes (below £30,000) who bought combined contents and buildings insurance paid higher margins than those with higher incomes
  • Insurers target renewal price increases at those consumers are less likely to switch
  • On a more positive note, the majority of consumers that switch or negotiate can get a good deal

Proposed Remedies

The FCA has proposed a list of potential remedies to take action against insurers’ pricing practices. The remedies seek to tackle the problems in the following three areas:

  1. Non-switching customers: the FCA is considering supply-side remedies such as forcing insurers to automatically switch consumers paying high prices to lower priced products that provide equivalent cover and limiting insurers’ ability to target price increases at consumers that are unlikely to switch
  2. Insurer practices that discourage switching: these remedies focus on making it easy for customers to exit their contracts and making it clearer for consumers when they enter auto-renewing policies
  3. Price transparency for consumers: these remedies seek greater communication of pricing strategies between insurers and consumers, particularly the reasons for price increases

For a comprehensive list of the proposed remedies click here.

The FCA also stated its intention to investigate the future use of innovation to benefit consumers and increase competition. Specifically, it wants the general insurance markets to be part of the Open Finance transformation taking place in wider financial markets (e.g. Open Banking).

Next Steps

The FCA are inviting feedback on these findings and potential remedies from insurers and market participants until November 15th. The FCA’s final report is due for release in Q1 2020.

A follow-up blog analysing the implications of the preliminary findings follows next week.


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About the author

Dougie Willins is a Senior Consultant at Oxbow Partners and an analyst on our Market Intelligence product. You can reach him at dwillins@oxbowpartners.com.

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