Uncertainty remains following FCA pricing review: Willis Towers Watson

Willis Towers Watson (WTW) has warned of continuing uncertainty following the Financial Conduct Authority’s (FCA) general insurance pricing practices review and the publication of consultation feedback and final rules.

WTW also expressed concern about the FCA’s implementation timeframes. The rules come into force from January 1, 2022, which could prove difficult for some institutions, WTW warned.

According to the new rules: “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.”

This creates an element of uncertainty for firms that must make their own judgements about how to apply certain rating factors in their pricing, WTW noted.

The industry had also sought clarity on the potential existence of an implicit margin remedy. The new rules state: "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.”

WTW said this rule “creates some challenges for insurers and intermediaries depending on their current approach to pricing.”

Graham Wright, UK property and casualty (P&C) pricing product claims and underwriting lead at WTW, said: “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.”

Stephen Jones, UK P&C consulting lead at WTW, 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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