UK insurers talk the talk on fair pricing, but can’t put proof to paper

UK auto and homeowner insurers can talk the talk on compliance with the UK’s regulatory ban on price-walking, but have trouble putting proof to paper when regulators come knocking, a report by the UK’s top  financial authority FCA has indicated.

“Many firms provided records to the attestor that clearly set out their approach to ensuring compliance with our pricing rules, including the governance framework. However, key evidence was often omitted,” the FCA wrote of its study based on corporate attestations of compliance.

The UK regulatory body had taken insurers to task for penalizing customer loyalty, funding attractive rates for new clients by squeezing long-standing clients who may not be driven to price hunt year after year, a practice known as price-walking.

All too frequently in the FCA’s compliance check, insurers “had satisfied themselves that their pricing model did not result in dual pricing [and] that they were compliant with our pricing rules, but provided no evidence to support these assertions,” report authors said.

Surveyed companies looked best when asked to show what actions they had laid out and taken to comply with the new fair pricing rules, in effect from the start of 2022. “Overall, the evidence provided indicated that most firms in the review had taken appropriate action to comply with our pricing rules.”

But proof that those actions had succeeded in securing the regulator’s fair-pricing goals was a little less available.

Only 11 of 66 firms "provided records in response to our request that met our expectations" across the spectrum of reporting requirements.

Some 27 brought well detailed action plans and internal reports but "did not include evidence that the controls were working as intended" nor proof that the eventual price generation was rule-compliant. Some 28 firms simply fell short of the reporting bar from end to end.

FCA supervisors complained that insurers are relying on individual “employees signing-off off/attesting to compliance in a document” that offered only “limited evidence as to how those individuals had satisfied themselves the firm was compliant.”

A string of 15 follow-up meetings added some measure of confidence and FCA supervisors "were generally able to gain sufficient assurance" that internal insurance company supervisors had a handle on conditions.

Smaller insurers suffered in comparison to their larger rivals. “Many of the smaller firms in the market had few or no records to show how they had complied with our pricing rules.”

For all the evidence or its lack, the FCA fell well short of declaring any major or systemic breach of their pricing rules.  But the regulator did say that the search for unfair pricing practices will continue.

A fresh round of data required by one of the varied regulations has just hit regulator desks to offer fresh insights and the FCA vows to “actively review and scrutinise firms’ attestations.”

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