PS21/11: General insurance pricing practices - amendments

We have published the findings of our multi-firm review on GI pricing attestations[8].

This review was to assess whether firms had taken appropriate action to implement appropriate systems and controls to comply with the pricing rules for motor and home insurance when they came into effect on 1 January 2022 and on an ongoing basis.

Overall, whilst most firms in the review had taken appropriate action to implement appropriate systems and controls to enable them to comply with our rules, some smaller firms lacked the records and evidence to demonstrate how they were compliant.

All firms setting the price of motor or home insurance should consider our findings. Where applicable, we expect all firms to take appropriate action to address any shortcomings identified and be able to evidence this.

In May 2021, we published Policy Statement 21/5[1] (updated in PS 21/11) setting out our final rules on insurance pricing and the enhanced product governance. The enhanced product governance rules came into force on 1 October 2021, and apply to manufacturers and distributors of all general insurance and pure protection products (except contracts of large risks or reinsurance contracts). 

As part of these rules, manufacturers must put in place product approval processes that identify whether their products provide fair value to consumers and will continue to do so for a reasonably foreseeable period in line with PROD 4.2. They are also required to consider the impact that distribution channels have on the overall price paid by, and benefits provided to, the customer.  

Firms were given a one-year transitional period from the date the enhanced PROD 4.2, rules came into effect to comply with this requirement for existing products. This transitional period ends on 30 September 2022.  

Concerns raised by firms and trade associations 

Manufacturers who design products which are sold through overseas intermediaries to cover non-UK risks for customers based outside the UK are also required to comply with the enhanced PROD 4.2 rules. However, distributors outside the UK are typically not subject to our rules. We wrote to general insurance and pure protection firms on 29 July 2022 setting out our expectations around fair value assessments. In this letter, we noted manufacturers’ concerns about the challenges in obtaining information from overseas distributors. We made the industry aware that we are considering the options available in response to situations where firms can't comply with our requirements despite taking all reasonable steps to obtain the required information. 

Our expectation for manufacturers whose products cover non-UK risks and intended for non-UK customers 

We are currently considering longer-term ways to address the practical difficulties manufacturers are facing in meeting the PROD 4.2 requirement to obtain information from non-UK distributors when undertaking the fair value assessment.  

In the interim, our expectations on manufacturers that sell products through overseas distributors that exclusively cover non-UK risks for overseas customers, are as follows: 

• Where manufacturers are required to obtain fair value related data/information from overseas distributors but have been unable to do so, we expect them to be taking reasonable steps to complete the fair value assessment required by the rules, including using data they may already hold or have been able to obtain for example on the total price paid by the customer.   
• However, where the requested information cannot be obtained from the overseas distributors, we do not expect manufacturers to report this to us as non-compliance with PROD 4.2.

We have conducted a multi-firm review to assess whether manufacturers of general insurance and pure protection products are undertaking the necessary work to comply with PROD 4 of the FCA Handbook.

We will email a letter to all firms with general insurance permissions, and those that manufacture or distribute pure protection products by the end of July 2022. This letter will explain our findings along with the actions we expect firms to take. If your firm manufactures or distributes general insurance and/or pure protection products, and you have not received the letter by the end of July, please contact the FCA at [email protected].

We have added a further question (1.24) on payments to charity to our Q&As[3].

We have added examples of the attestation forms and cover letter in the attesting compliance section.

We have added a section on attesting compliance.

We have added a further question (1.23) on cash-equivalent incentives to our Q&As[10].

We have added further questions (1.16 to 1.22) on incentives to our Q&As[11].

Since publishing PS21/5, we have engaged with stakeholders to understand the challenges involved in implementing our rules.

PS21/11 contains updates and clarifications to address some of the issues raised. Specifically, the rules in Appendix 1 of PS21/11:  

• clarify the application of some of our rules to firms that give discounts or other incentives to customers 
• clarify the application of our reporting rules to intermediaries that rebate commission 
• amend the definition of a ‘renewal’, this will alter the way in which our pricing and reporting rules apply to firms  
• clarify the operation of the transitional rules 
• make minor amendments to some of the reporting and other rules 

We are also publishing Q&As[12] to address some of the questions we have received since publishing PS21/5. We will update these where we consider that further clarification is relevant to the wider market. 

We are also working on the final wording of the attestation that price-setting firms must submit under our rules. We expect to publish the form very shortly. 

On 25 June 2021, we made a small change to the rules published in PS21/5. This can be found in the Handbook Instrument at Annex B on page 4[3]. 

As a result, the rules relating to premium finance disclosure (ICOBS 6A.5.2R and 6A.5.3R) will come into effect on 1 January 2022, instead of 1 October 2021, when the remaining rules in Annex D, Part 1 of the legal instrument (Appendix 1 of PS21/5) come into effect.