Tackling poor value products in the general insurance sector

The FCA is taking action to incentivise firms to improve the value of general insurance (GI) products being sold to consumers and has introduced a value measures pilot scorecard to provide greater transparency around product value comparison. However, developing a meaningful way of measuring the value of GI products is far from straightforward.
 
Here we examine the steps that the regulator has been taking in an effort to find a remedy and put forward our thoughts on how firms might tackle this metric within their own organisations.
 
Background
The 2014 FCA market study on General Insurance (GI) Add-Ons found poor value products when measured as a proportion of the cost of claims paid compared to the retail premiums paid by consumers. In some instances, these low claims ratios had existed for years, which indicated that firms are not under pressure to improve value. The FCA concluded that consumers find it difficult to assess value because of a lack of commonly available measures for GI sector products.
 
The FCA’s value measures scorecard
In January this year, the FCA published its first set of data for the GI value measures pilot scorecard. The FCA’s intention is to use the findings from the pilot exercise to refine the value measures, obtain further evidence and to feed into any potential consultation. The FCA acknowledges that the measures are not intended to give a perfect representation of value although they can be used as indicators. Our view is that the pilot data, as it stands, is a reasonable starting point but it needs to be broader to provide a meaningful comparison between insurers and individual products. You can find our more detailed thoughts on the limitations of the of the scorecard data here.
 
Is there a solution?
In an ideal world, the data would be far more granular and include measures covering aspects such as customer retention rates, customer satisfaction rates, distribution channels, customer service, speed of claims settlement, the percentage of claims settled in full, and premiums. In the real world, the effort and cost involved in producing such a detailed analysis of how products measure up against each other or against some form of bench-marking is likely to outweigh the actual benefits to consumers. In any event, we would expect the regulator to take a proportionate approach, weighing up the cost involved to firms against the potential benefits to both firms and consumers.
 
The addition of the average retail premium as a scorecard measure is not a solution in itself. It would, however, be a relatively simple and effective improvement to a tool that is intended for use  as an indicator of value for non-consumers.
 
What you should be doing
While there is no obvious practical solution to providing a transparent measure or benchmark of value in the GI markets, it is worth bearing in mind that the driver behind the introduction of the pilot was to incentivise firms to improve the value of their products. Firms should therefore be regularly reviewing their own internal data on the performance and value of their products, as part of their product governance and oversight arrangements. Internal management information needs to be accurate, up to date and clear enough to allow firms to quickly identify and modify (or withdraw) products that could be seen as providing poor value for money or poor outcomes to customers.
 
 

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