Insurance regulative news, September 2020 # 4|Hogan Lovells – JD Supra

29September 2020

Current regulative developments of interest to insurers and their intermediaries. See also our General regulative news in the Related Products links.


  • COVID-19: FCA Dear CEO letter and consequentials hearing for BII test case
  • General insurance pricing practices: FCA final report of market study
  • General insurance market study: FCA CP20/19 on Handbook changes
  • General insurance value measures reporting: FCA PS20/9

COVID-19: FCA Dear CEO letter and consequentials hearing for BII test case

On 18 September 2020, the UK Financial Conduct Authority (FCA) released a Dear CEO letter setting out its expectations of insurers (consisting of handling representatives) following the High Court’s judgment in the business interruption (BI) insurance test case. The High Court bied far its judgment on 15 September 2020 (see our separate rundown: Analysis: the FCA Organization Disturbance Test Case ruling).

Where insurers have actually found clarity in the judgment to now conclude their claims processes, the FCA encourages them to do so as quickly as possible.

For insurers that are waiting to comprehend whether a particular point in the judgment will be appealed, the FCA expects them to be clear to their insurance policy holders about the next steps.

The FCA expects all insurers to take a practical, constant and transparent method to their interactions with insurance policy holders over any staying evidence that applies to specific claims, rather than these creating additional barriers or delays to paying legitimate claims. It states that this consists of evidence for proximity and frequency for “illness” protection provisions. The FCA will publish additional information to help insurance policy holders and insurers with the procedure of supplying and assessing suitable evidence on proximity and frequency in the coming weeks.

In relation to claims dealing with, the FCA states that insurers should assess the clarity the judgment provides and, regardless of any possible appeals, think about the steps they can take now to progress claims of the type that the judgment states should be paid. This should consist of taking all sensible steps to make sure that all those claims are ready to be paid and settled at the earliest possible opportunity after any appropriate appeals.

In line with FCA assistance, insurers need to examine the ramifications for appropriate non-damage BI policy phrasings, where the test case might impact the result of claims generally, consisting of questions of causation. They should also reassess all potentially affected problems and claims, unless correctly decided on a final and full settlement basis, and, where relevant, keep the Financial Ombudsman Service totally informed.

Insurance companies should also think about the FCA’s August 2020 statement, which highlights the need to think about the appropriateness of making reductions for Federal government assistance insurance policy holders might have received. The letter also consists of commentary on reductions versus services.

Insurance companies need to communicate straight, and as soon as possible, with insurance policy holders to describe the next steps. By 22 September 2020, they need to offer a minimum of a preliminary update on the judgment’s ramifications.

Insurance companies should also update the FCA on affected policies. The FCA will give more details on how to do this once it understands the scope of any potential appeal.

Where the FCA identifies that insurers are not fulfilling the expectations set out in the letter, it will utilize the full series of its regulative tools and powers to ensure they do so.

The FCA has individually upgraded its BI website to recommend that the court has validated that, following its judgment, the consequentials hearing will happen on 2 October 2020. At the consequentials hearing, the court will hear submissions from the celebrations on the suitable declarations to be made by the court in the light of the judgment and on any applications for appeal.

The FCA will update its website with the time of the hearing (which will “most likely” be 10.30 am) and details of the livestream, when readily available.

General insurance pricing practices: FCA final report of market study

The FCA has released the final report of its market study on general insurance pricing practices, MS18/1.3, which concentrated on pricing practices in the retail home insurance and motor insurance markets and the effect of these on consumer results and competition.

In its study, the FCA found that some companies charge lower costs to brand-new customers and after that slowly increase the price to customers who renew with them year on year (price walking). Numerous companies adopt “lifetime value pricing” focused on winning customers through introductory discount rates and recuperating initial losses gradually by increasing margins. Some companies also utilize practices that make it more difficult for consumers to make more informed choices and raise barriers to changing, consisting of making it tough for consumers to stop their policy from instantly renewing.

In addition, numerous customers are unaware of price walking practices and so are not likely to change since they do not understand that their renewal price might not be competitive. While consumers who often change company or negotiate their premium can get lower costs, the FCA found that customers who have actually been with the exact same insurance company for five years or more are paying considerably higher premiums. Overall, the FCA concludes that the markets are not working well for consumers which current pricing practices distort competition, and lead to higher costs and higher browsing costs.

The FCA proposes (and is consulting individually– see below) a package of treatments which is meant to stop companies from methodically increasing costs in home and motor insurance for devoted customers, along with assisting to make sure that companies in the general insurance market concentrate on supplying fair value to all their customers. In specific, the FCA proposes to present guidelines whereby when a customer renews their home or motor insurance policy, they should pay no greater than they would if they were brand-new to their company through the exact same sales channel. It also proposes item governance guidelines needing companies to think about how they provide fair value to all insurance customers over the longer term, requirements on companies to report certain data to the FCA, and requirements to make it easier to stop automated renewal throughout all general insurance items.

General insurance market study: FCA CP20/19 on Handbook changes

The FCA has released an assessment paper, CP20/19, on the following Handbook changes as an outcome of its general insurance market study:

  • amendments to the Insurance: Conduct of Organization sourcebook (ICOBS) needing when a firm using a renewal price to a customer to make sure that the renewal offer price is no higher than the comparable brand-new organization price that the company would provide a brand-new client. This constraint will use to consumer motor and home insurance and additional items sold along with them;
  • changing to the Item Intervention and Item Governance Sourcebook (PROD) to make sure that companies have processes in place to provide items that provide fair value to customers. When they were manufactured, the FCA will extend the scope of the guidelines to all general insurance and pure security items regardless of. The FCA also means to present disclosure requirements, set out in brand-new ICOBS 6A.6 connecting to premium financing sold along with insurance items;
  • changing to ICOBS to need companies to provide a variety of choices for consumers who wish to cancel auto-renewal on their agreement. This proposal will use to all retail general insurance items; and
  • introducing brand-new reporting requirements, set out in the Guidance manual (SUP) at brand-new SUP 16.28, for companies to send regular reports connecting to home and motor insurance.

Appendix 1 to CP20/19 sets out the draft Handbook instrument connecting to these proposals: the Non-Investment Insurance Coverage: Item Governance, Premium Financing, General Insurance Coverage Auto-Renewal and House and Motor Insurance Coverage Pricing Instrument 2021.

The consultation closes on 25 January 2021. The FCA means to publish a policy statement in Q2 2021, with a view to its final guidelines entering effect four months after publication of the policy statement.

General insurance value measures reporting: FCA PS20/9

The FCA has released a policy statement, PS20/9, on general insurance value measures reporting and publication. In PS20/9, the FCA sets out the final text of amendments to:

  • the Guidance manual (SUP), needing insurers and insurance intermediaries to report data on value measures to the FCA. These requirements are set out in brand-new SUP 16.27 (General insurance value measures reporting). The FCA will utilize this data to publish assistance to promote competition connecting to item value and to safeguard consumers by lowering the potential for damage brought on by the sale or purchase of bad value items; and
  • the Item Intervention and Item Governance sourcebook (PROD), needing companies to have reliable treatments in place to make sure, on a continuing basis, that their items provide adequately good value to customers and take into consideration value measures information. These requirements are set out in brand-new PROD 4.5 (Additional expectations for manufacturers and suppliers in relation to value measures data).

Appendix 1 to PS20/9 sets out the FCA Handbook Instrument making these changes: the Worth Measures Reporting and Keeping An Eye On Instrument 2020 (FCA 2020/40). The instrument enters into force on 1 July 2021, with the exception of Annex C (which includes the amendments to PROD), which enters into force on 1 January 2021. For the functions of the item governance guidelines, throughout the transitional duration between 1 January 2021 and 1 July 2021, SUP 16.27 R will be deemed to take effect making it possible for the referred to item governance guidelines to operate.

The FCA released an assessment paper on GI value measures reporting (CP19/8) in January 2019. PS20/9 sums up the amendments it has made to those proposals.

The FCA released PS20/9 along with the final report of its GI pricing practices market study and an assessment paper on treatments (CP20/19) from that market study (see below). The FCA will think about the value measures item governance guidelines and the need for any amendments in the advancement of the GI pricing practices item governance guidelines spoken with on in CP20/19. The FCA also means to work with stakeholders in the personal medical insurance market to develop value measures metrics for that item.

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