The FCA has changed the game for more established players in the insurance sector with its significant gear change in pricing for insurance business. The gap between new business and renewal pricing under the new guidelines will need to be brought in line, which is causing market disruption as many insurers have complex pricing methodologies in place that discounts the initial sale. In our analysis of industry data, there are examples of insurers not only losing their dominant position (reducing their previously high number of pricing ranks), but also reducing their market share for key risk groups. The immediate impact of this new legislation is perhaps most measurable in the form of market share. A telling shift in who is winning business and who is being competitive can largely be attributed to the new pricing requirement. Some of the larger insurers with more complex methodologies are losing share because of price differences that are no longer competitive. The removal of cross subsidies between new business and renewals negatively influence their new policy pricing, and coupled with a new pricing strategy in line with the changing regulatory environment has proven bad for business. Smaller, more agile insurers have been able to adjust to this new pricing change with less turmoil and greater speed and have accommodated the new pricing regulations with greater ease, empowered by their ability to retain stable pricing and increase market share, simply because there is now more business at their price point.

The longer-term impact of this new regulation is constantly evolving, and over the next 12 months it will be paramount that insurers keep a close eye on what could be a continual set of interesting changes. Insurers that have lost share will now need to take a deeper dive into addressing the imbalance at a time when business volume will be less certain. Smaller and medium-sized insurers will need to adapt to the larger volumes of business they are acquiring. This increased volume will put unplanned operational pressures on the business infrastructure and considerations will be needed to provision systems and operational capacity. Insurers will also be having to deal with the impact of the pandemic on consumer behavior, fewer people traveling to work, more people working from home and a general lifestyle re-assessment that will no doubt spill into insurance pricing.

There are bound to be more stable areas across certain risk categories and segments, with the more price-sensitive groups experiencing the biggest changes. However, it is likely we will see greater stability amongst more niche sectors where there has always been less of a competitive environment. It is one thing being able to identify and accept that change is happening, but something else to plan and adapt to it in such a way that business is not disrupted. Processes and systems should not be negatively impacted, and most importantly profitability must be sustained in the short term and increased in the future. The question now facing the industry is how is this achieved?

We hope you stay tuned to this series of articles where we will be providing more detailed insights into shifts in the market based pricing based on our analyses of market data. In our next article we will look at the segments with greater pricing stability in the market and how the people’s travel habits change in combination with insurers’ re-pricing reaction to the FCA regulations.  Thereafter, we’ll be explaining how we are helping insurers in the market react and capitalise on these rapid fluctuations.