New Pricing Regulations for Insurers

    The balance for new and long-term insurance customer benefits is about to change in a major way. Insurance companies have long been known for their focus on new customers while neglecting their current loyal customers a4nd essentially negating their value. In addition, the increase of digital engagement and governance present their own challenges. However, as of September 2021, the rules for insurers will fundamentally shift toward treating customers fairly and eliminate ‘price-walking’ with an emphasis on data and its incredible value.


    Last year, the FCA (Financial Conduct Authority) completed a large-scale study and found that insurance markets simply do not benefit consumers. The report investigated the process of customer renewals for home and motor insurance and found a clear break in overall fairness. There was a clear indication of price discrimination. As a result, the FCA created new guidelines basically stating current customers should pay no more than a new customer. 

    The FCA report examined ‘price walking’ practices which include loyalty penalties or dual pricing. It now stipulates how the current customer must be able to buy their policy online and be charged the same price as a new customer. The new regulation references how and when new insurance customers can receive more competitive and cheaper premiums compared to the long-term customers who annually renew their policy. On the flip side, even though insurers won’t be able to increase the renewal price over time (price-walking) they will be free to set new business prices.

    Why did the FCA get involved?

    In 2018, the FCA identified harmful pricing practices citing 6 million policyholders were paying high or very high premiums. It was calculated that these customers could have saved £1.2 billion if they’d paid the average rate for their risk level. The FCA’s study, which took place over a two-year period, found extensive evidence that companies:  

    • Gradually increase premium prices for customers who renew with them year on year.
    • Use complex pricing methods to identify consumers who are likely to renew.
    • Increase premiums each year resulting in loyal customers paying incredibly high prices and much more than a new customer.
    • Place greater value on acquiring new customers as opposed to retention and treating current customers fairly.
    • Spend an estimated £2 billion per year to attract new business which hikes prices for the current customer

    What the FCA wants for all consumers

    The FCA wants consumers to benefit from digital innovation and competition, while simultaneously addressing their problems. Therefore, other FCA measures will boost competition while creating fair value to all insurance customers including:

    • Product governance rules that require companies to consider the process in which they offer fair value. 
    • Requirements for companies to report certain data sets to the FCA, ensuring rules are being followed. 
    • Making the ‘stop automatic renewal’ process easier for all products

    The FCA feels consumers should be able to access, assess and act on information for more informed buying decisions. They should be able to trust and be confident they’re getting appropriate quality products and services for the price they pay.

    What does all this mean for insurers and how they conduct their business?

    Many businesses feel the deadline is extremely difficult to meet. However, it’s not impossible. Insures will need to adapt and adjust their overarching business model. Some of the trends that will impact the business and operating environment are:

    • Digital transformation and data
    • Operational resilience
    • Workforce transformation
    • Financial resilience

    It’s become evident that digital innovation and competition support greater value for consumers as markets become increasingly digital. Insurers should use data and algorithms ethically to price and have adequate controls to prevent undue bias or discrimination. Insurers will be expected to have robust policies on fair value for vulnerable consumers, and do not target vulnerable consumers with poor value products and services. 

    How can insurers accommodate these regulations and trends?

    Insurance companies might struggle to meet the deadline but there is no grey area when it comes to treating customers in a fair and just way. Insurance companies will need to focus on creating risk management and compliance frameworks within their operating model. As regulators continue to refine and expand other areas of consumer fairness such as climate risk and insure-tech supervision, well informed and equipped insurance businesses will be confident and able to comply by monitoring and taking action quickly.

    Data remains a key trend across the board. Privacy laws and the increase in consumer’s pandemic-related digital engagement require insurers to increase their focus on data operations and governance. The new regulation will give companies until the end of September to implement any new systems as well as product governance. However, auto-renewal pricing changes will need to be in effect by the end of 2021. The recent regulatory action message is clear. Insurers can anticipate higher levels of accountability and enforcement.

    This is where Cazoo Data Services can help insurers See the Full Picture.

    Cazoo Data Services products are designed for the automotive industry and their customers. They help insurers identify the risk and price claims fairly. Cazoo Data Services offers whole market data with an unbiased data driven view allowing insurers to see the full picture of the entire market.

    Cazoo Data Services tools also directly help insurance customers. We can pre-populate a number of fields based on a VRM number so when a customer enters one into an online form the value will automatically be filled in along with mileage and date of purchase. With so much information in front of them, there’s no need for a customer to shop elsewhere.

    Cazoo Data Services tech will make their insurance journey smoother and more valuable while increasing the business’s conversion rate. Getting traffic and interest is one thing but keeping the potential customer on a website is another story. Cazoo Data Services helps insurers keep hold of the policy owners they’ve invested so much time and money into.

    Cazoo Data Services brings innovative AI and data science-driven modelling to an outdated sector that relied heavily on manual editorial processes and opinion in an attempt to establish current and future vehicle values. Cazoo Data Services products offer clear data and insights that insurers love. One of the most popular choices is our Claims Companion. Our intelligent tools offer reporting and data that is capable of integration to show:

    • All the similar vehicles currently for sale and sold within the last 12 months. Without that information, claims handlers would have to do their own archaic market research through various listing sites and filtering tasks.  
    • DVLA data to include last MOT, plate changes and owner changes, eliminating the need to search several sites that typically don’t show previous adverts. Save approximately 15 minutes of handling time per claim.

    All this combined with Cazoo Data Services market values mean insurers are more efficient and can offer fairer cover pricing and claim settlements. Cazoo Data Services data gives insurers the competitive edge with clear and real-time information to accurately price risk and cover. Just one example of the satisfied clients, Mark Jahn, Causation Team Manager at Somerset Bridge LTD said: “After initially trialling the product (Claims Companion), we could see it was going to be a good fit with the internal changes we were undertaking with our intelligence team. It fitted with the overall evolution of how we wanted to be working and nicely plugged a gap in the tools we were using. 

    Before using Cazoo Data Services we were relying on free classified sites such as Autotrader and eBay Motors as well as having a pay per click contract with Cap HPI. This was an expensive and very manual, time-consuming process as we had to use multiple websites with each one needing a different login!  Claims Companion allows us to access all the data we need in one place meaning we no longer have to use multiple apps or websites, saving us both time and money in the process.`` 


    To learn more about how we can support your insurance business contact the team today.

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