UK regulator unveils insurance pricing practices review

UK’s regulator Financial Conduct Authority (FCA) plans to conduct a review of pricing practices in general insurance, according to its business plan 2017/18.

The pricing practices review is scheduled to be completed by the first quarter of the 2018/19 financial year. The review was preceded by the publication of a feedback statement in September 2016 on the FCA’s call for “inputs on big data in retail general insurance”. In the document, the FCA proposed specific discovery work to look at pricing practices in a limited number of retail general insurance firms. “This will ensure we can gain a better understanding of how these developments [related to big data] are affecting the market,” the regulator said in the business plan.

The review will be carried out in 2017/18. The FCA will look at how firms’ pricing approaches and rating factors work in practice, as well as the drivers and the types of systems and data firms use to decide the final price to consumers. Following this work, the FCA will consider whether, and what, further steps need to be taken in this market.

The FCA has also expressed concern about the fact that insurers’ adverse risk selection could leave higher risk consumers priced out of the market or unable to access products and services as firms use data analytics to exploit information about consumer behaviour.

Widespread use of telematics and wearable devices will continue to allow insurance risk models to be calibrated with richer consumer behaviour data, the FCA said. Innovative ways to use growing data volumes are likely to influence insurers’ calibration of individual vs pooled risk. This might include innovations in genetic testing to predict health problems. The potential rise in those who are excluded in some way from accessing the financial products and services they need is a long-term challenge for the financial sector, according to the FCA.

Today’s top stories

Athene raises €2.2 bn capital to invest in the European run-off life market

Towergate backers snap up Ryan Specialty's UK insurance services unit

Hiscox replaces chief information officer with new hire from Barclays

Did you enjoy reading this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.