FCA Pricing Reforms: Home and Motor FAQs

From the 1st January 2022, the Financial Conduct Authority (FCA) is implementing new rules around how Home and Motor insurance products are priced. Its aim is to level the difference between prices quoted for new customers versus existing customers who are renewing an existing policy.

The FCA’s “general insurance pricing practices market study”, found that the home and motor

insurance markets could work better for customers. While many people shop around for insurance, other customers don’t, and those customers weren’t necessarily getting good value.

The new rules mean an insurer must offer a renewal price to a customer that is no greater than the equivalent new business price that it would offer them as a new customer. Importantly, this rule only applies when purchasing the policy via the same sales channel (channels such as the insurer’s website or on the telephone with them, via individual price comparison sites or through a broker).

The FCA also wants companies to make it easier for customers to stop their insurance policies from renewing automatically – and so helping people consciously make the decision to either stay with their existing provider or switch to a different provider.

There are other rules around product governance including how insurance companies and their distributors consider whether products represent fair value. Insurers will also need to report back to the FCA to help them:

• monitor compliance against the new rules
• identify where customers may be disadvantaged
• monitor the market

They begin on the 1st January 2022, with the exception of fair value focused product governance which began on 1st October 2021.

The FCA has focussed on home and motor insurance because these products represent the greatest differences between new business prices and renewal prices.

For products like pet insurance, there are additional considerations.  For example, a pet could have existing conditions which are covered under their existing policy but would be classed as pre-existing conditions on any new policy and potentially not covered.  So different products have different approaches to pricing and what they will cover.

Similarly, these rules only relate to retail insurance products so insurance for companies’ premises or vehicles are not included in these changes.

Theses new rules affect the whole market, so everyone will have to follow them for Home and Motor insurance products.

If you still have questions, please speak to your usual RSA broker relationship manager who will help find an answer.

The FCA’s intention is that customers pay the ‘right’ amount for their insurance and that they aren’t negatively discriminated against compared to new business customers. In practice this means that while some customers may see lower prices, others may not, and some may not see much change at all.

One example could be that a customer that shops around every year, may find that new business prices aren’t as cheap as they once were because providers aren’t heavily discounting new business quotes.

It is your responsibility to make sure your customers understand these new rules and are happy with the product you’re distributing – and its price. The ABI and FCA have more information to help explain the new rules in addition to the information on this page. It may also be worth contacting BIBA for any further assistance they can give.

This is unlikely because typically, a renewal quote is generated a few weeks before the renewal date so it can be sent to customers in good time prior to their existing policy year ending. 

For example, if someone’s insurance policy expires on the 1st March, the renewal price could be calculated at the end of January to make sure they know what they’d be paying if they chose to stay with the same provider. But if they then do new quotes on other channels the quote they’ll get might be different – as different information will have been available to the company providing the quote on the two days those quotes were produced. Equally, the price comparison sites might be using slightly different data points to calculate a quote from all the insurers they work with.

There are many factors taken into account when calculating an insurance premium and any changes to these factors in the intervening days or weeks can change the price quoted if someone gets a new quote (versus the renewal quote they have been sent). Customers may have noticed price rises across the board in recent months, and the same is true for the amounts we have to pay when sorting out a claim. So on top of these many variables, the cost of claims is increasing which means insurers are likely to raise prices.

Equally, a renewal quote will be for the same cover and features which someone already has – and a new quote for a new policy might have different factors or features. For example, within Motor insurance, are the estimated number of miles driven in a year the same, and does the policy include other features like a free courtesy car? And with Home insurance is the same total value insured the same, and have extra features like accidental damage cover been included?

These rules only apply when purchasing the policy via the same sales channel (channels such as the insurer’s website or on the telephone with them, via individual price comparison sites or through a broker). It is therefore unlikely to see ‘matching’ prices from different channels.

Also, the renewal premium and price quoted as a new customer would need to be calculated at the same point in time. Because insurers frequently change their prices, a customer could the find the same insurer offering a different new business price nearer to the renewal date – and via the different channels.  This is still allowed under the new rules.

Different or additional data items might exist when a new quote is generated. For example, the number of miles they drive could change.  Again, this could result in a lower new business price and wouldn’t have been factored into the renewal quote.

And a combination of these factors could apply.  Basically, something has changed which has an impact on the price the customer will pay.  All these factors exist in the market today and will continue to after the new rules go live.

If a renewal quote was issued in 2021, it won’t be subject to the new rules. Therefore, it is possible that a new business quote will be different and higher or lower than that renewal quote.

No. When we calculate a renewal price it is valid until the renewal date – subject to you not making any changes to your customer’s personal circumstances (for example you may tell us they’re going to increase their mileage or add additional items to their home insurance for the next renewal period) or any new claims in the intervening days.

The new rules mean that if someone is renewing their policy, we have to ensure the renewal price is no higher than the equivalent new business price via the same specific channel.

That does not necessarily mean the renewal price will be lower as there are many factors taken into consideration when calculating an insurance premium.

There are many factors taken into account when calculating an insurance premium. You may have noticed price rises across the board in recent months, and the same is true for the amounts we have to pay when sorting out a claim. So on top of these many variables, the cost of claims is increasing which means insurers are likely to raise prices.

The FCA found that the home and motor insurance markets are not working as well as they could for all customers. While many people shop around for insurance, many customers don’t, and those customers aren’t necessarily getting good value.

The new rules mean that when an insurer offers a renewal, it must offer a renewal price to a customer that is no greater than the equivalent new business price that it would offer them as a new customer. Importantly, this rule only applies when purchasing the policy via the same sales channel (channels such as the insurer’s website, on the phone, via individual price comparison sites or through a broker).

Your cover will only have changed if:

• You’ve asked us to change it
• We’ve informed you of any changes to the cover provided by your policy

Many factors are considered when calculating insurance premiums.  The rules relate to the same customer (whether they are new or existing). So similar customers, or people with similar cars or homes, will not necessarily see the same prices for their insurance