In response to the FCA’s criticism of GI pricing, Keith Richards, managing director for engagement of the Chartered Insurance Institute, has stated insurers need to take action.
“The FCA’s intervention has been expected for some time but we should not forget that the issue is not unique to insurance. Internet, cable and telephone companies employ similar pricing strategies in a market where consumers generally focus on price rather than benefits and value.
Our own public trust index has shown that pricing practices around renewal are by far the biggest factor that negatively impact consumer trust, and we are not surprised to see the FCA focus in this area.
We welcome the FCA’s decision not to intervene in a prescriptive way, but to focus on governance practices within the sector.
As the FCA’s paper states, consumers tend to focus on the initial price of an insurance contract, rather than renewal prices.
This means that unless the regulator keeps close tabs on governance throughout the sector, there will always be a short-term reward for firms that take a less stringent approach to their treatment of vulnerable clients.
The only permanent solution to the problem of fair treatment of customers around renewal pricing will come from focussing competition on sustainable factors, such as the quality of protection given to clients, the quality of the claims process, the cost of the contract over the longer term and the speed and ease of service for clients.
We know from the research we have done with the Chartered Insurance Institute’s Public Trust Index that consumers value these factors more than the initial price of the contract, but when we buy insurance, the information we are given is mainly about initial price rather than the longer-term cost of the contract or the quality of service we will receive.
The insurance profession as a whole has a challenge to develop ways to demonstrate the quality of its service as powerfully as the initial cost of the contract.”
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