The FCA continues to prepare for its crackdown on unfair pricing
Last week, the FCA released its Feedback Statement (FS19/4) following the publication of the Discussion Paper on Fair Pricing in Financial Services (DP18/9) which asked for debate on the following pricing practices:
- firms charging different prices to different consumers based solely on differences in consumers’ price sensitivity (also known as ‘price discrimination’)
- firms charging existing customers higher prices than new customers (sometimes referred to as ‘dual pricing’)
In the feedback statement, it summarised the main themes from the 51 formal submissions received and set out how it intends to use the 6-question framework which has been developed to help assess concerns about fairness in price discrimination.
Whilst the FCA has said it will act to ensure prices are fair for all customers, it has highlighted those customers who are deemed vulnerable or less resilient, as the ones at most risk of being significantly disadvantaged and where they will be “more likely” to intervene.
The FCA also said "Similarly, there are some firm behaviours that we would be more concerned about. For example, if firms actively sought to identify customers who do not understand the product in order to charge them more, we would be particularly concerned."
The regulator has, in recent times, introduced a variety of new measures and guidelines in an effort to address some of the perceived unfairness within the general insurance sector and mitigate the risk of poor outcomes for customers. The Government has also been involved following the Citizen’s Advice super complaint regarding the “loyalty penalty” that was lodged with the Competition and Markets Authority (CMA) in September last year.
Considering this activity, and where the regulator may be heading, firms are already reviewing their pricing strategy and product governance processes, and some have been publicly promoting the work they are doing to tackle ‘dual pricing’ in their advertising for multi-year fixed price products.
Reviews of customer communications, in particular to those customers demonstrating signs of inertia, are also being undertaken. Not to mention analysis of huge amounts of complex data used in pricing models to determine whether factors have been, or are being, used that may lead to discrimination. Indeed, many firms have, or are, reviewing their books to understand what potential detriment may have been caused to their customers by pricing practices in the past.
In terms of what’s next for the regulator on this topic, the FCA will apply their 6-question framework to the General Insurance Pricing Practices Market Study (which has been ongoing since October 2018) and publish the findings later this year with a further report on the next phase of fair pricing work to be reported in Q4 2019/20.
In summary, whilst total and consistent fairness in pricing across the sector is unlikely to be achieved overnight, insurance firms would be well advised to start acting now to address the FCA’s concerns or face the potential repercussions in the not too distant future.
This will likely include reviewing current policy and process and looking at past books of business to determine whether any detriment has been caused. BrightPool can offer expert support and the right skills and capacity needed to manage reviews, remediation and complaint handling.