The Financial Conduct Authority (FCA) announced today that it is taking a long hard look at how general insurance firms charge for home and car insurance.
General insurance generates over £75bn in premiums every year in the UK and the FCA is concerned that pricing practices aren’t genuinely competitive and in its own words ‘have the potential to cause harm to consumers’.
FAIR TREATMENT PARAMOUNT
The study will look particularly closely at whether the industry is treating customers fairly ‘whether they are new or long-standing’. It says it has identified ‘potential non-compliance’ by some firms regarding rules on transparency at renewal.
This gets right to the heart of the matter, as anyone who has renewed their car or house insurance will know that new customers are routinely offered better prices than existing customers.
The FCA has written to the CEOs of all the general insurers asking for their views on how they decide on pricing together with accompanying evidence by the end of January.
It will then publish its preliminary findings next summer with the aim of issuing a final report by the end of next year.
BUYER BEWARE IN INSURANCE STOCKS
Curiously most general insurance stocks are trading better today, possibly because investors are oblivious of the FCA’s announcement. More likely though is the feeling on the markets that the impact will be limited.
Running through the first-half statements, as we might expect the large insurers with global exposure look more insulated with Aviva (AV.) and RSA (RSA) generating less than 20% of operating profits from UK home and car insurance.
However, the likes of Admiral (ADM), Direct Line (DLG), Esure (ESUR) and Hastings (HSTG) are almost entirely dependent on these markets, with motor insurance cross-subsidising loss-making home insurance at Admiral and Esure.
