LONDON, 22 September, 2020 — Today the FCA released its long-awaited final report into GI pricing practices. The headline finding is that the FCA has suggested a key pricing remedy which will require firms to offer a renewal price for retail motor and home products that is no higher than the equivalent new business price for that same customer through the same sales channel. This report represents the latest milestone on a long journey for the insurance industry.
Graham Wright, UK P&C Pricing Product Claims and Underwriting Lead at Willis Towers Watson, comments: “The UK general insurance industry will no doubt welcome the publication of a proposed outcome to this long investigation, although inevitably the FCA’s paper will raise as many questions as it answers. One of the biggest challenges for insurers and intermediaries alike is managing the transition given current market competitive pressures, and therefore deciding how and at what point price changes should be made.”
As well as outlining the proposed remedy and additional supporting measures, the report appears to effectively provide an endorsement for the use of complex modelling and price optimisation techniques, stating that “most significantly, it can allow firms to compete by offering different prices and products to different consumers. This can benefit consumers if it allows firms to offer a range of choice and better deals. Our judgement is that stopping firms from price optimising completely could lead to less effective competition and worse consumer outcomes overall”. In effect, this recognises that although general insurance pricing practices are extremely complex in the eyes of the average customer, ultimately this complexity is intended to harmoniously balance insurer and intermediary commercial objectives with fair individual customer outcomes.
Whilst at face value the proposed remedies will require insurers and intermediaries to significantly adapt their pricing practices, the scale of the change is not incomparable to that which was required of the industry in 2012 when the ruling against the use of gender in insurance pricing was enacted. To that end, we would expect the insurance industry to rise to the challenge posed by the FCA over the coming months. It is also worth noting that although the main focus is on home and motor insurance, the product governance rules will also apply to wider general insurance and pure protection products.
“As with any regulatory change, there will be winners and losers within the industry, and the winners will be those with the ability to flexibly adapt their pricing strategy.”
Stephen Jones
UK P&C Consulting Lead at Willis Towers Watson
Stephen Jones, UK P&C Consulting Lead at Willis Towers Watson, comments further that: “As with any regulatory change, there will be winners and losers within the industry, and the winners will be those with the ability to flexibly adapt their pricing strategy. Critical to any effective adaption strategy will be strong portfolio management and governance, the need for greater operational efficiency, the ability to report clearly on the adherence to the remedy and flexible deployment, all of which are effectively enabled by our Radar technology platform.”
The full Willis Towers Watson Radar product suite comprises the Radar Base modelling and reporting environment; Radar Dashboard for sharing pricing management information across the organisation; Radar Optimiser for price optimisation; and Radar Live for rate delivery.
All are fully integrated with Emblem, which fits predictive models rapidly to very large and complex datasets to reveal the underlying patterns in your data, and Classifier, which provides detailed categorisation and assessment of risk by geography.
Willis Towers Watson’s Insurance Consulting and Technology business has over 1,200 colleagues operating in 35 markets worldwide. It is a leading provider of advice, solutions and software – primarily to the insurance industry. Its consulting services help clients manage risk and capital, improve business performance and create competitive advantage – by focusing on financial and regulatory reporting, enterprise risk and capital management, M&A and corporate restructuring, products, pricing, business management and strategy.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving in more than 140 countries and markets. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.
