The final landscape for personal lines pricing following the FCA’s GI pricing practices review has become evident today with the publication of the consultation feedback and the final rules. Whilst many of the proposed rules are unchanged from those published in September 2020, some aspects of the rules have been clarified whilst others have been left to firms’ discretion.
“The clarity of particular elements of the rules including around the use of incentives and the changes to the closed book rules will likely be welcomed by many in the market.”
Graham Wright
UK P&C Pricing Product Claims and Underwriting Lead
Graham Wright, UK P&C Pricing Product Claims and Underwriting Lead at Willis Towers Watson, comments: “The clarity of particular elements of the rules including around the use of incentives and the changes to the closed book rules will likely be welcomed by many in the market, whilst other elements will no doubt fuel further debate around the best actions for insurers and intermediaries to take now in order to meet the FCA’s requirements.”
Amongst those areas on which the industry had sought clarity during the consultation, one key area was the potential existence of an implicit margin remedy. This will merit careful consideration as the rules now clarify:
"When comparing a firm’s new business price with the renewal price for individual customers, we would not expect to see that the longer a customer’s tenure is, the greater the difference between: (1) in the case of an insurer, the risk price and the net-rated price or gross price; or (2) in the case of an intermediary, the net-rated price and the gross price.”
This naturally creates some challenges for insurers and intermediaries depending on their current approach to pricing. Whilst there have been further rules added on governing the use of different data items between new business and renewals, there undoubtedly remains an element of uncertainty with firms left to make judgements around how to apply certain rating factors in their pricing. Perhaps most notably - appearing to represent a considerable change from the original draft - the new rules require that:
“A firm must include in its determination of a customer’s equivalent new business price any risk information acquired during the term of the customer’s current policy that has the effect of either increasing or decreasing the equivalent new business price.”
“Whilst in 18 months’ time the industry will have begun to stabilise in the new world, there is no doubt that the coming months will represent one of the most turbulent times for the personal lines industry.”
Stephen Jones
UK P&C Consulting Lead
As well as outlining the final rules for the pricing remedy, reporting requirements, auto renewal changes and fair value, the FCA has clarified the implementation timeframes with the pricing remedy coming into force from 1 January 2022. Our judgement is that for many players in the market, this timeframe remains a tough ask and will no doubt cause some players significant challenges in the weeks ahead.
Stephen Jones, UK P&C Consulting Lead at Willis Towers Watson, added: “Whilst in 18 months’ time the industry will have begun to stabilise in the new world, there is no doubt that the coming months will represent one of the most turbulent times for the personal lines industry”.
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