Thominah Talukdar, senior consultant at Avyse Partners, explains why motor insurers shouldn’t ignore the regulator’s seemingly quiet agenda.
In her Mansion House speech, the Chancellor identified insurance as one of five priority growth sectors. In doing so, she called for regulators to support competitiveness while maintaining consumer protection. While the rhetoric suggests a lighter regulatory touch, it’s fair to say the reality has been different.
Despite all the talk about less regulation, proportionality and a focus on economic growth, the motor insurance market (and the insurance market in general) is facing a quiet storm of regulatory activity.
But this quiet storm is sending a loud message: act now or deal with the consequences.
Affordability is still front and centre
Motor premiums have more than doubled over the past decade. Yes, we’ve seen a slight dip recently (in February this year Consumer Intelligence reported a 6% drop in average quoted premiums), but affordability is still a hot topic.
In July, the FCA released a series of publications, including a summary of findings from the Motor Insurance Taskforce. These were hardly surprising to the industry. Motor insurers have consistently maintained that rising costs are primarily driven by external factors. They range from supply chain pressures, repair cost inflation, uninsured drivers and micromobility vehicles, to rises in thefts, soaring bodily injury claims and fraud. The question will be whether this is enough to perhaps shift the focus from pricing practices towards systemic cost drivers.
Total motor loss: the gift that keeps on giving
When I served as the Skilled Person on the FCA’s multi-firm review on motor total loss (MTL) claims, I was struck by the lack of immediate regulatory follow-up. Typically, reviews of this nature are followed by clear, market-wide messaging on lessons learnt and expectations regarding next steps. But in this case, private, closed-door conversations took place across the sector, rather than a market-wide announcement.
That silence was broken abruptly when, in September, the FCA announced that insurers had collectively set aside over £200m in redress for underpaid claims. This wasn’t just a financial headline. It was a clear signal that, while the regulator may not be as loud, it is actively monitoring outcomes and won’t hesitate to intervene when standards fall short.
The FCA has identified many of the findings from the MTL review in its work on travel and household claims. For many insurers, it’s the first time their interpretation of the high-level claims handling rules, their claims handling practices and the supporting governance and oversight arrangements have really been tested in practice. And it’s clear that some enhancements are needed.
Is premium finance the next flashpoint?
In July, the FCA published its Premium Finance Market Study. In it, the regulator highlights the importance of, and demand for, the product. After all, 48% of motor and home insurance customers use premium finance as a payment means. And for many, it isn’t a choice but a necessity.
The FCA has long been concerned about the amount of money insurance firms earn through premium finance. Some have started to take action. But many continue to bury their heads in the sand. They have no desire to be early movers in the absence of any regulatory guidance on what constitutes an acceptable rate (particularly when considering the financial hit).
In light of recent issues around the adequacy of fair value assessments and motor commission disclosure, it will be interesting to see how the FCA intends to bring the long debate on premium finance to a close.
Consumer Duty: still driving change
Firms will have heard over the last two years that Consumer Duty isn’t a one-and-done exercise. Insights from our conversations with the regulator confirm that it remains high on its agenda and is the ‘golden thread’ that runs through all the initiatives it undertakes. There is ongoing concern that firms are still not always putting customers first.
While I have focused mainly on the motor market in this article, all general insurers should consider the issues below more closely:
- Fairness in handling of claims. The first offer should be the best offer and firms should avoid ‘low-balling’, anticipating that customers won’t negotiate or that the offer can be increased if they do.
- Customer communication. In particular, how offers are presented to customers (ie do they facilitate consumer understanding and support the customer in making an informed decision?)
- Fairness when offering premium finance. Consideration of affordability, ensuring customers are aware they’re entering into a consumer credit agreement, and that premium finance products offer fair value.
- Oversight of third parties (who might, for example, handle claims or complaints). Our conversations with the FCA suggest that this is an area where there is always some meat to take back to the cave.
- Overall governance and oversight of Consumer Duty. Is the right, outcome-focused management information reaching the right audience and leading to demonstrable debate, decisions and action?
- Outcomes monitoring is a specific area of focus for the FCA. The regulator is placing increased trust on businesses to proactively identify and resolve issues, as it adopts a less intrusive and intensive supervisory approach.
- Ensuring firms are undertaking root cause analysis (RCA) and can demonstrate resulting insights that drive tangible change and decision making.
- Treatment of vulnerable customers. The identification, recording and support provided to vulnerable customers remains an ongoing concern. The FCA is working with the Information Commissioner’s Office (ICO) to identify how some of the challenges posed by data protection legislation can be overcome – watch this space.
Final thoughts
While the FCA’s approach may appear to be less visible and generate less noise, it’s arguable that its quieter or more private interventions make just as much impact.
Firms in the motor insurance sector should beware of taking their foot off the gas when it comes to delivering good customer experiences and outcomes. There are still consequences for doing so. The FCA will be keen to act if it perceives that the increased trust it’s placed in businesses has been breached.
The regulator is moving on from its previous thematic, supervisory approach. But we are still waiting to hear what the future priorities and areas of focus will be.
When they come, they will still matter and should continue to drive action.
Avyse Partners is a regulatory consulting company. If you would like further guidance on any of the issues raised in this article, please contact Jessica Wills.
