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FCA issues insurance review and market study

The FCA has published a review and market study on the UK retail general insurance market, the former focussing on home insurance.

The review interrogates the fact that, unlike the motor insurance sector, where price competition has led to a lack of overall underwriting profitability, home insurers have “generally been profitable at an industry level over the last 20 years.”

The FCA puts this down to the lover average tenure of home insurance policies and the “relatively low frequency of UK catastrophes”.

However, after analysing factors ranging from insurance firm’s pricing strategies, governance and controls to the rating factors used in pricing, and then having engaged in scenario analysis, the review concludes that price differentiation, which is where different customers are charged varying amounts for the same product – despite having similar risk characteristics and costs – is a concern.

The watchdog states that it is worried that insurance firms are using “ever increasing amounts of data” – be it third party or otherwise – to effectively discriminate based on protected characteristics.

As part of the FCA’s planned next steps, in which the watchdog reports that it will use “our supervisory powers to require firms to tackle evidence of harm and expect firms to take immediate steps where necessary to address the issues identified,” the FCA has also published a market study entitled “General insurance pricing practices.”

Launched to focus on the fairness of pricing practices and how they impact consumers and competition, the FCA invites views from stakeholders on the topics the study covers with a deadline set for 3 December 2018.

The FCA intends to publish an interim market study report in summer 2019 and, where required, consultation on proposed remedies by the end of 2019.

FCA chief executive Andrew Bailey says: “Our initial work has identified a number of areas of potential consumer harm. We want to make sure that general insurance markets deliver competitive and fair prices for all consumers. This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.

“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”


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