The biting report from the Financial Conduct Authority (FCA) says car and home insurance markets are not working well for consumers and has put a cat amongst the pigeons of insurers' price optimisation models.
UK Insurers will loose margin and have to rely on better products and services to reduce churn and win/keep customers. There is a more urgent need to reduce underwriting and claims costs and they will look for technology partners to deliver that without charging large development, systems integration and consulting fees.
The new No-Code vendors like Unqork and 360SiteView are doing just that with the added advantage of much faster time to value.
Insurance Times highlights the difference between various premiums for new customers and those that have stayed loyal for five years of which there are 10 million policy holders in the UK! Current margins that insurers will loose.
Cover New Customer 5 Year Customer
Home £285 £370
Buildings £130 £238
Building-Contents £165 £287
Contents Only £56 £138
Most insurers have relied on gaining new customers via aggregators' sites using attractive pricing and the lethargy of those slow to switch to maintain higher prices and fat margins.
No longer once the FCA's consultations end and it bans 'price walking' the process of increasing prices steadily each year for those customers that do not switch.
Whilst motor insurers have gained lower claims costs from the reduction in motor claims during lock-down and work-from-home (WFH) and others hardening market for PI and business interruption policies this FCA policy will hit the other way.
They will need to address all claims costs quickly to help fund the new innovation and better services required to win and keep customers. Sooner rather than later.
There are further storms on the horizon- the lucrative ancillary income of add-ons:
- Premium Financing
- Legal Expenses
- Breakdown Cover
- Key Cover
THE FCA has already looked at these and you can expect more attention to increase transparency and tackle over-pricing. Some insurers make almost all their profit from ancillary pricing.
All the more reason to tackle all the cost categories of insurance and claims to anticipate these pressures n margins
The loyalty tax issue has dogged the insurance sector for years, and the FCA has previously obliged companies to add messages to renewal documents suggesting that policyholders might get a better price by shopping around. PROMOTED However, it now wants tougher action to counter the ‘complex and opaque pricing practices’ that insurance companies use to allow them to raise prices for consumers that renew with them year on year.