FCA's multi-firm GIPP review: Emerging challenges for pricing in the general insurance sector
FCA's multi-firm GIPP review: Emerging challenges for pricing in the general insurance sector
What is General Insurance Pricing Practices (GIPP)
In 2021, The Financial Conduct Authority (FCA) published rules (PS21/5 and PS21/11) to improve the way the insurance market functions in relation to Motor and Home Insurance. This was in response to tackling price walking and the rules aim to prevent loyal, long standing and potentially vulnerable customers from paying more for their insurance than new customers. To combat this issue the new General Insurance Pricing Practices (GIPP) rules were created and these capture both Insurers and Distributors. The GIPP rules went live on 1st January 2022 and require Home and Motor insurance firms to provide a price that is no higher than the equivalent new business price (ENBP), including consideration of the value of incentives offered to new customers and how this can be reflected in existing customers renewal prices. Additionally, the new rules require a Senior Manager to attest annually that the Firm has, and will on an ongoing basis, complied with the requirements set out in ICOBS 6B.
As part of the FCA’s follow up activity, a multi-firm review was conducted to assess Firm’s compliance with the updated rules. The review focused on 70% of the UK home and motor insurance markets and comprised of 18 insurers and 48 intermediaries, looking at their adherence to the key pricing rules outlined in ICOBS 6. As a result of this review the FCA identified key findings which they published in December 2022 (General insurance pricing attestation multi-firm review | FCA) these are outlined below.
Appropriateness and quality of supporting records
To support the attestation process firms are required under ICOBS 6B.2.57R to provide the attestor, and the FCA upon request, with the records that show compliance to ICOBS 6B. However, the FCA identified that information provided by 28 Firms was not sufficiently informative or granular for the attestor to attest to compliance. Furthermore, 27 Firms did not provide evidence of their documented controls working as intended. As such, there is a concern that Firms recording keeping requirements are not sufficient to ensure all required information is recorded and provided to the attestor annually. Additionally, if the attestor relies on other individuals to attest, Firms should ensure these arrangements, outlining key responsibilities, are documented.
Ongoing compliance from 1 January 2022
As part of the review all Firms were asked to provide the policies and procedures, they had in place, to ensure compliance with the pricing rules. The FCA found the information provided by a third of Firms could not adequately demonstrate how they were complying with the requirements under ICOBS 6B. The regulatory expectation is a clearly documented framework aligned to the applicable rules in ICOBS 6B.
As such, Firms need to ensure the control framework in place is adequately documented and revisited on an ongoing basis to ensure compliance with updated rules is maintained. For example, Firms should outline the reporting and MI framework, evidencing how this aligns to the relevant elements of the pricing rules, as well as, the regularity of the reports and the responsible committees and their record keeping processes. Firms should also consider what quality assurance arrangements can be implemented to assist in reviewing the operational effectiveness of the control framework.
Individual attesting
The FCA identified instances where firms had not provided an appropriately senior individual to attest to compliance with ICOBS 6B. Specifically, the FCA required a SMF holder or, where not an SM&CR Firm, a director to take accountability. However, the FCA were unable to identify if the individual making the attestation was appropriately senior. As such, there is concern that firms are not giving enough prominence or consideration to the FCA’s pricing rules. Firms should ensure the appropriate individual is given the responsibility to complete ongoing attestations, and where a director is the signatory (rather than an SMF), provide the relevant supporting information outlining their role.
Additional points
The FCA also reviewed the relationship between new business incentives and renewal prices, noting most Firms have now discontinued the use of incentives. The FCA didn’t identify material concerns in this area, however, where Firms offer incentives, it is vital the appropriate assessment is conducted to consider whether they are compliant.
The FCA also iterated that Firms should ensure all internal breaches are reported and then assessed for escalation to the regulator, highlighting a proactive approach to breach management is more effective.
How we can help
We have extensive experience in supporting firms, across the financial services sector, in relation to product governance reviews utilising a gap analysis approach, new general insurance pricing practices requirement reviews, attestation reviews, value assessment frameworks as well as providing broader regulatory compliance support, including consumer duty work.