The speed read

  • Insurance customers overpaying by £1.2 billion
  • New policy statement on overdraft pricing and competition remedies
  • Looking back over a year of the FCA and TPR’s joint regulatory strategy
  • Reminding SIPP operators of their responsibilities

Insurance customers overpaying by £1.2 billion

The FCA has shared findings from its interim report on pricing in home and motor insurance and has made suggestions to fix the issues.

In this headline-grabbing announcement, the regulator found that competition is not serving all consumers, with around six million policyholders overpaying for their insurance. Though this affects all types of customers, the FCA estimates that a third of those affected are considered vulnerable.

The findings of the report include:

  • Firms actively make it harder for consumers to switch.
  • Consumers who switch or negotiate generally get a better deal.
  • New customers are often sold a discounted policy, but prices rise when they renew.
  • Insurers target increases towards those less likely to switch.
  • Insurers largely factor in the likelihood of a customer switching when setting the price of a policy. This is not made clear to customers.
  • On average, longstanding customers pay more. But some people who switch also pay higher prices.
  • One in three consumers who paid high premiums had characteristics of vulnerability, including having lower financial capability.
  • For policyholders of combined contents and building insurance, people of lower income paid higher margins than those with higher incomes.
  • Those paying for more for their premiums aren’t as likely to understand insurance, nor the impact renewing has on the price they pay.

The FCA said that, following new rules introduced in 2017, it has improved transparency about renewal on general insurance policies, saving customers money. It will carry on pushing firms to both improve oversight of their pricing practices and meet requirements of other recent policy changes.

The regulator is considering how it can:

  • Manage the high premiums consumers are paying. It is considering banning or restricting practices like price rises for longstanding customers, or making it a requirement for firms to move customers to cheaper equivalent deals.
  • Remove barriers to switching that firms employ, including restricting how firms use automatic renewal.
  • Improve the clarity and transparency with which firms communicate and deal with customers. It is also considering whether firms should publish information about price differences between customers.
  • Use innovation long-term so general insurance markets benefit from tech developments like Open Finance.

The final report and consultation on remedies for this market study are due to be published in Q1 of 2020.


New policy statement on overdraft pricing and competition remedies

In the next stage of the FCA’s work on high-cost credit, the regulator has released a policy statement on overdraft pricing and competition remedies.

The new rules come as part of the regulator’s overall package of changes to reform the overdraft market. It intends to help customers and improve competition among overdraft providers.

Feedback from the consultation in June 2019 highlighted that changes needed to be made to improve the transparency of pricing. Among the changes are the following:

  • Firms will need to publish overdraft pricing information along with information on current accounts, making comparison easier. This will also make the costs of an overdraft more transparently available.
  • The regulator has altered the definition of a private bank in the policy statement.
  • Foreign currency accounts are now exempt from the competition remedy rules.
  • A small change to the rule about auto-enrolment for text alerts and push notifications.

The new rules on the publication of pricing information will come into force on 6th April 2020.


Looking back over a year of the FCA and TPR’s joint regulatory strategy

Deb Jones, the FCA’s Director of Supervision, Life Insurance and Financial Advice, gave a speech at a joint event for the FCA and TPR.

The event looked back over the past year of the regulators’ joint regulatory strategy. Along with that strategy, Jones outlined some other workstreams that are taking place in the pensions and retirement income sector.

Two consultations she mentioned were:

  • Changing how advisers manage and deliver pension transfer advice, particularly for DB transfers, including a ban on contingent charging.
  • The role of Independent Governance Committees (IGCs) in ensuring value for money for workplace personal pension scheme members.

On what the FCA and TPR have been doing to deliver the joint strategy, Jones discussed pensions freedoms, particularly DB transfers.

As you’ll be aware, the FCA’s reviews into the advice consumers have received revealed that only half the advice was suitable. With the harm of unsuitable advice on DB transfers in the range of £1.6 billion to £2 billion per year, Jones reminded the audience that this issue is not confined to a few firms. Though most consumers are best suited to keeping their DB scheme, 60% of firms recommended that at least 75% of their clients should transfer.

The regulator has been visiting the most active firms in the market and will continue to do so for the rest of 2019. It will also be contacting firms whose DB pension transfer advice has shown potential harm. Depending on the outcome of those assessments, the FCA is considering extending its 2020 assessments to include a wider range of firms.

Jones said that DB pensions will continue to be a priority for the regulator next year, and that it won’t stop until the pension transfer market has reached an acceptable standard.

In other areas, the FCA and TPR are looking to do more collaborative work on value for money. Next year they will consult on a definition and have a wider discussion on common principles and standards.

Jones also said it was impossible to emphasise just how committed the FCA is to encouraging innovation in all sectors. It wants to ensure innovation benefits consumers by delivering greater access and lower prices, and products that are better suited to customer needs.


Reminding SIPP operators of their responsibilities

Following events around a recent High Court judgement involving a Self Invested Pension Plan (SIPP) operator, the FCA reiterated firms’ due diligence obligations, as outlined in a Dear CEO letter from October 2018.

If a SIPP operator’s ability to meet financial commitments as they fall due is called into question by this case, they should contact the FCA immediately, the regulator said. It should also treat complainants fairly, managing complaints in line with the rules of the Dispute Resolution Handbook.

The FCA also said that following an ombudsman decision, firms must consider acting for customers who’ve been disadvantaged but who’ve not complained. Firms need to make sure those customers are given proper redress.

A firm pursuing a sale of part or all of its business or assets should consider the implications for customers who may have compensation claims.

The regulator expects all directors to comply with their statutory and non-statutory duties, as well as the provisions in the FCA Handbook. This includes duties to creditors when a firm is at risk of insolvency. Such creditors include customers owed compensation.

The FCA said it will take all this behaviour into account for any future regulatory applications, including applications for individuals to hold or resume FCA-approved roles.