The UK’s City watchdog has fired a warning shot at the insurance industry by urging firms to rapidly improve their standards to ensure they comply with a fresh regime that comes into effect in just six weeks.
According to a new report published by the Financial Conduct Authority today, insurance firms are not ready for new rules designed to improve product standards which come into force on 1 October.
In a damning assessment of the industry, the FCA said: “Too many firms are not fully meeting the FCA’s standards. In addition, many firms are likely to be unprepared to meet new enhanced rules on product governance, which come into force on 1 October 2021.”
The regulator has ordered insurance firms to stop using dual-pricing models which penalise loyal customers by increasing premiums if they renew their policies each year.
Under the new rules, renewal prices should be no greater than the value of an equivalent product offered to a new customer.
Insurance companies typically use the additional money taken from loyal customers to offset the cost of offering products to new customers at a significanly lower price.
Sheldon Mills, executive director for supervision, policy and competition at the FCA, said: “Where firms are not consistently meeting existing requirements and expectations, it risks harm through poor value products or products being sold to the wrong customers.”
“These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.”
A wide ranging review of the industry published in May by the FCA found that “home and motor insurance markets were not working well for consumers, particularly loyal customers.”
The representative body for the insurance industry stressed that firms have taken steps to improve their product governance controls to ensure they comply with the new rules.
James Dalton, director at the Association of British Insurers, said: “Since the data was collected for this review, significant work has continued to take place across the industry to meet the enhanced product rules and the new governance rules scheduled to come into force in October and the new pricing rules due to be introduced by January.”