It was back in March 2013 that the FSA (as the UK regulator was then) first suggested the idea that publishing claims metrics would assist transparency and consumer decision making. The Financial Conduct Authority (FCA) continued to progress the idea as a possible remedy to what it saw as poor value provided by certain add-on products during its 2014 Market Study.
We have always been supportive of the regulator’s consumer protection objective. However, we continue to doubt the ability of the FCA’s proposals to meet that objective.
Despite industry opposition to the publication of claims metrics in the way proposed, because of the risk of giving consumers a false picture about the value of insurance, the FCA has since completed three pilot exercises where selected firms reported claims frequencies, claims acceptance rates and average claims payouts. The FCA published the reported data on its website.
In its recent consultation, the FCA proposed to mandate the reporting and publication of claims metrics by all insurers (including Lloyd’s managing agents) for the majority of consumer products where the insurer meets the minimum policy and premium thresholds for a particular product. The proposed metrics are the three used in the pilot plus claims complaints data. Reporting complaints data creates an additional issue for managing agents, as complaints are currently reported on an aggregated basis by Lloyd’s centrally.
We submitted a substantive response to the FCA’s consultation, expressing our concerns about the proposals. We believe that the FCA’s view, that quantitative metrics can accurately describe the value of an insurance product, is flawed. To mandate these metrics for high-volume, low-premium, standard-form products is one thing; to apply these measures to bespoke policies underwritten in an intermediated, wholesale market, on a subscription basis, is another. The proposed FCA requirements are developed for insurers distributing directly to a mass market or via price comparison websites.
We have advised the FCA that many Lloyd’s customers want to buy cover for ‘non-standard’ risks and go to the Lloyd’s market for bespoke cover. The comparisons available from the proposed value metrics will be of little benefit to them. Indeed, they could prove confusing, by suggesting that customers may be better off with products which are not, in reality, available to them or suitable for them. We believe the most important element of any product is its suitability. In terms of coverage and price, placement is typically negotiated by brokers on behalf of insureds in a competitive environment.
We believe that, if the FCA does publish claims metrics data, it should limit publication to those standard-form products it feels may not be offering sufficient value – some interest from media, consumer groups and the general public might then be expected.
We believe the FCA’s proposals in their current form may add additional regulatory burden and cost to the market for little, if any, benefit. The FCA has not provided evidence of benefit from the pilot exercises. We will continue to push back on the FCA’s current proposals, as will Lloyd’s and the Association of British Insurers who share similar concerns, and we will keep our members informed of developments. Our response to this and other consultations can be found on our website.
Published 12 August 2019