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FCA Terms of Reference for Market Study into General Insurance Pricing Practices

  • United Kingdom
  • Competition, EU and Trade
  • Financial services and markets regulation


On 31 October 2018 the FCA announced the launch of a market study into how general insurance firms charge their customers for home and motor insurance. Its Terms of Reference (ToR) for the market study set out the scope of the market study and the issues the FCA is seeking to explore. The study will examine pricing practices in the home and motor insurance markets and will focus on the following key issues:

  • the consumer outcomes from pricing practices;
  • the fairness of outcomes from pricing practices; and
  • the impact of pricing practices on competition.

The FCA is seeking to build on the diagnostic work it has undertaken as well as its Discussion Paper on fair pricing in financial services markets, also published on 31 October, by considering whether pricing practices are leading to competition working well for consumers, as well as the fairness of those pricing practices. The market study may inform the way the FCA intervenes in the market, through regulatory remedies, or lead to certain parts of the market being referred for a more in-depth market investigation.


The market study will focus 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. The FCA notes that both of these markets are characterised by the use of personalised pricing, based on individual consumer characteristics, and that the price a consumer pays will typically be different on renewal.

While the market study will focus only on home and motor insurance, the FCA has said that it expects it 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.

Harm from pricing practices

The FCA has noted from its diagnostic work that on average longstanding consumers pay higher prices for home insurance than the prices paid by newer customers. The FCA is seeking to understand the extent of any harm by these pricing practices, in particular:

  • 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.

Fairness of pricing practices

The FCA is also seeking to understand 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.

Impact of pricing practices on competition

Finally, the FCA will also consider 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;
  • Impact of pricing practices on 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.

This is not the first time that the functioning of the general insurance market has been subject to competition scrutiny, with the motor insurance being subject to a CMA market investigation which concluded in 2015. The FCA will not be looking at the same issues that the CMA did in that investigation, except that it will explore the role of “add-ons” in the context of assessing whether different business models that have developed are delivering good consumer outcomes.


The FCA’s market study reflects a growing and important focus by the FCA across their different areas of work and across different areas of financial services on price discrimination – whereby loyal customers are worse off and paying higher prices compared to new customers – and the general question of ‘fairness’ in pricing.

There is also wider focus as a result of the Citizens Advice Bureau’s super-complaint made to the Competition and Markets Authority which highlights this exact issue across different markets/sectors.

Given this focus, market participants in home and motor insurance, and also more broadly, should expect the FCA to look closely at pricing practices across the insurance sector. This combined with the FCA’s broad suite of powers to remedy concerns – including an ability to impose ‘direct restrictions on pricing’ as flagged in its Discussion Paper on fair pricing in financial services markets - means that firms should carefully consider how they wish to engage with the FCA on this market study.

Publication of the TOR marks the start of an information gathering phase for the FCA. Firms that do not receive a request are likely to have an opportunity to engage in the process, should they wish to do so, by responding to the findings of the interim report, by making voluntary submissions or attending roundtable events. A timeline setting out the key milestones is set out below.


3 December 2018: deadline for comments on the issues discussed in the market study terms of reference and accompanying evidence;

31 January 2019: deadline for comments for the discussion paper on fair pricing and accompanying evidence.

Summer 2019: FCA is aiming to publish an interim market study report setting out preliminary conclusions, including potential remedies

By the end of 2019: FCA aims to publish its final report and consultation on proposed remedies.