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FCA’s Market Study into General Insurance Pricing Practices: Pricing interventions proposed to tackle competition concerns

  • United Kingdom
  • Competition, EU and Trade - Competition e-briefings


The FCA has published its interim report in relation to its market study into how general insurance firms charge their customers for home and motor insurance (Interim Report).

The FCA has provisionally found that the market is not working well for consumers. In particular, pricing practices mean that customers who do not typically switch, especially vulnerable customers, are paying higher prices for their insurance.


The market study is focusing on pricing practices for home and motor insurance by firms that sell insurance direct to consumers, as well as third parties such as brokers and digital comparison tools, such as price comparison websites. Both of these markets are characterised by the use of personalised pricing, based on individual consumer characteristics, and the FCA has concerns that the price a consumer pays will typically be different on renewal.

Specifically, the FCA has been seeking to understand the following:

1.The extent of any harm caused by the way in which premiums are priced:

  • differences in the premiums paid by different consumers as compared to the costs to firms of providing the insurance;
  • number of consumers affected by higher prices;
  • characteristics of consumers, particularly vulnerable ones, who are paying higher prices; and why some consumers end up paying higher prices.

2.How firms treat different groups of consumers and the impact this has on pricing outcomes, in particular:

  • firms’ pricing models and strategies and whether this leads firms to take advantage of particular consumers;
  • the information that firms provide to consumers when they renew insurance;
  • the impact of contractual terms, such as auto-renewal; and
  • how firms address their responsibilities to treat customers fairly, especially those that are vulnerable.

3. Whether pricing practices in the home and motor insurance market encourage effective competition by considering:

  • the impact of pricing practices on coverage and access to insurance;
  • the impact of pricing practices on the profitability of firms;
  • whether the current nature of competition in these markets leads to excessive costs; and
  • whether the current nature of competition in these markets leads to barriers to entry or expansion in the market.

Provisional findings

The FCA has provisionally found that the market is not working well for consumers, in particular vulnerable customers, because:

  • new customers often benefit from discounted policies as compared to long-standing customers who typically pay more;
  • customers who pay higher premiums are those less likely to understand insurance or the impact of renewal on the prices they are charged. These customers are typically those who are less aware of how pricing works, in particular those with less financial knowledge, no internet access, and who trust insurance firms to offer them competitive prices;
  • consumers do not search or switch for more competitive prices and a “substantial minority” are unaware that they are being charged higher prices by not switching. Moreover, insurance firms engage in practices which make switching less likely. For example, complexity and a lack of transparency about how firms are pricing makes it difficult for customers to understand how they might benefit through searching and switching.

Actions the FCA is proposing to tackle concerns

The FCA has said it will use the “full range” of its tools to take a “holistic approach to tackling” its concerns. Specifically, the FCA is provisionally proposing a package of remedies as set out below:

• Proposals to address high prices for consumers who do not switch or negotiate

1. Restricting the ability of firms to charge higher premiums to consumers who do not switch. This may include for example restrictions or an outright ban on “margin optimisation” – the practice of adapting the profit margins firms aim to earn from individual customers, based on a consumer’s willingness to pay, likelihood to buy or renew, or buy add-ons. The FCA considers this to be a form of price discrimination.

2. Automatically switching consumers who are paying high prices to lower priced products that provide equivalent cover.

3. Requiring firms to engage with customers to give them information about alternative deals and identify those who may need help in moving to better priced products with equivalent cover.

4. Expanding or strengthening existing product governance requirements.

5. Requirements for firms to provide data tracking their actions to improve pricing practices and monitoring pricing differentials between their customers.

• Proposals to address practices that could discourage switching

1. Ban or restriction on the use of auto-renewal of insurance policies, including where there has been a change in the price.

2. Making auto-renewal opt-in only.

3. Making it easy to decline auto-renewing policies at the time of purchase and at renewal.

4. Ensuring that firms make it as easy to exit a contract as it was to sign up.

• Proposals to make firms be clearer and more transparent in their dealings with consumers

1. Requiring firms to be transparent about their pricing strategies and the reasons for price increases.

2. Requiring firms to publish information about their price differentials between their customers. This may increase competitive pressure and public scrutiny that could prompt firms to improve their pricing practices.

The FCA will consider the possible impact that these remedies might have on consumers during the remainder of its market study.

Next steps

The FCA has asked for feedback on its proposed remedies by 15 November. The Final Report is due in Q1 2020.


As noted in our briefing in November 2018, the FCA’s market study reflects a growing and important interest by the FCA in price discrimination and ‘fairness’ in pricing arising from the Citizens Advice Bureau’s super-complaint made to the Competition and Markets Authority which highlighted the issue of price discrimination and “loyalty payments” across different markets/sectors.

The FCA appears serious about tackling these concerns and the far reaching proposed remedies signal a greater level of intervention intended to have a material impact on the market, forcing insurers to change practices and improve consumer welfare - most notably in this instance by proposing specific pricing interventions.

The FCA has said that it expects its findings to go some way to informing which aspects of these markets are relevant to other areas of financial services and to inform the interventions it might take in those other markets in the future. We can therefore expect to see the FCA taking similar action in other markets that it considers are not delivering fair consumer outcomes.

For further background of FCA activity in General Insurance please see our briefing here.