The FCA have today published their final report of their market study into the pricing of home and motor insurance.
Having asserted that the home and motor insurance markets are not working well for consumers, the FCA have proposed significant reform of these markets to enhance competition and to ensure that consumers receive fair value and regain trust in the markets.
The core of the FCA’s proposal is the abolition of “dual pricing”, the common practice of pricing a new customer at a significantly different rate to a renewing customer. Under their proposals the FCA would like to see insurance providers offering parity of pricing per channel, so for example, someone renewing a new policy online would be charged the same as someone buying a new policy online.
Today’s announcement could finally spell the end for dual pricing – one price for new customers, and a significantly different one for those renewing. But that’s not all. Today’s proposed remedies would also finally see the death of the race-to-the-bottom that the outdated price comparison website site industry has subtly imposed on consumers over many years of conditioning. The concept that “cheap” is the only thing a consumer requires in their insurance is fundamentally flawed and has led to today’s situation where insurance policies are – in the main – stripped back to their bare bones in terms of cover, and thus leaving consumers with the minimum levels of protection as a way of driving as much cost as possible out of products.
As a result, consumers have been duped into solely buying “cheap” and paying little attention to what their actual insurance needs are, and for those who shop around each year on PCWs, the cycle of buying “cheap not right” perpetuates, leaving consumers without the cover that they – in all probability – actually need.
Today’s FCA proposals would see an end to this practice. As year 1 prices will inevitably creep up as insurance providers seek to add profitability (or break even) into their acquisition year 1 pricing, providers – and crucially distributors of insurance products such as PCWs – will need to justify this as just saying “cheap” will no longer be relevant. Hence, differentiation will move to “provision”, i.e., what the product includes, and in a move that will be hugely beneficial for consumers, product features will once again become a function of the decisions made in buying insurance, leaving consumers with the right cover for them and not just something that is super-cheap but actually marginal in terms of its actual value to them.
At Honcho we fully support these proposals. We have consistently said that the obsession with cheap insurance is bad for both consumers and insurance providers, and an environment where consumers are encouraged to buy the right thing for them is one that we are fully supportive of, and indeed it is already how Honcho works. We fully recognise that price is an important element, and that competitiveness is a key factor and smart consumers will, of course, still shop around year-on-year; but a future where insurance shopping is for the thing that you actually need, rather than just the cheapest you can find at all costs, will be a refreshing and positive change for everyone involved.
The future of insurance distribution is not solely price comparison - it is about product discovery too!