Few guidelines about the general insurance pricing practices.
Whilst it may be understandable for the industry to be pausing for breath ahead of the publication of the Financial Conduct Authority's (FCA’s) finalised market study into General insurance pricing practices, there is much to do right now, and insurers should aim to be on the front foot taking the issue seriously.
The publication of the interim market study in October 2019 signalled the potential for some far reaching remedies given the extent of the potential consumer harm that was identified. The root causes of the potential harm, such as the complexity of pricing practices employed by insurers, the extensive use of data and techniques such as margin optimisation have to be considered alongside the fact that, overall, the market is not making excessive profits. Therefore it is appropriate that the FCA considers next steps carefully given the risk of unintended consequences from intervention.
In the meantime firms should be acting as a priority on those areas identified by the FCA as a cause for concern in the responses they received to the original Dear CEO letter in relation to Pricing Practices:
Ensuring that a clear, Board approved, pricing strategy is in place. Particular areas of focus should include:
Ensuring that the firm’s approach to governance, control and oversight ensure that risks to customer outcomes from pricing are appropriately mitigated in practice. This should include:
Ensuring that the approach to pricing is embedded across the firm.
It is not enough to implement a new strategy, it has to be embedded in the day to day operation of the pricing team. This is as much about driving cultural change as it is changing MI and technical pricing processes. Firms should consider their approach to performance management and objective setting, role profiles, recruitment, communication and investment prioritisation processes.
2020 will be a pivotal year for Pricing Practices in the General Insurance sector. There is much to do and firms should not wait. Get in touch to see how we can help you to get ahead.
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