The FCA’s Consumer Duty and Fair Value regulations are shining an increasingly bright spotlight on claims and customer outcomes, with the regulator having already highlighted GAP insurance as an area of concern.
FCA director of insurance Matt Brewis wrote to insurers in September following the publication of the regulator’s latest value measures data, which revealed that for GAP insurance only 6% of the amount customers pay in premiums is paid out in claims – dropping to almost 4% when sold as an add-on policy.
The FCA revealed it has also seen examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as motor dealerships.
“This is an early signal of the work we’ll be doing under the Consumer Duty,” Brewis said. “Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided.
“If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.”
But how are other business lines faring under the FCA’s value measures?
While GAP insurance was revealed to only be paying out 6% of premiums in the form of claims, there are a number of other business lines that are paying out small amounts of the premiums generated.
Excess protection cover for motor policies, for example, only paid out claims equal to 15% of premiums while sold as an add-on, while personal accident insurance paid out just 19% of premiums in the form of claims.
To put this into context, the average across all business lines stood at 38%, with healthcare cash plans leading the way with some 67% of premiums being paid out in claims.
Other business lines paying out more than 60% of collected premiums in the form of claims include pet (covered for life) policies (65%), motor insurance (65%), and motorcycle insurance (61%).
This, of course, does not mean that all business lines with a low percentage of premiums paid out as claims will draw the attention of the regulator, but these metrics do give an idea of where the regulator may be passing its gaze.
Those insurers operating in these areas must, therefore, be ready to demonstrate the value of their policies, whether that be in the financial sense, or other softer metrics such as peace of mind.
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