B.I.S.S Research White Papers

Anticipation and reaction: rule

Share on twitter
Share on linkedin
Share on facebook
An FCA intervention to improve the insurance market has saved consumers millions of pounds. Behind the headline lies a complex interaction between regulations, insurance firms and consumers.

It’s been three years since the Financial Conduct Authority introduced new rules for insurers aimed at boosting competition and encouraging consumers to shop around.

    An evaluation of the effectiveness of the rule changes shows consumers saved an estimated £185 million a year (a central estimate), based on the intervention’s initial impact across the home, motor and pet insurance markets.

      But headline results are not the end of the story. The FCA’s evaluation paper also examined how the benefits had arisen and found the mechanism of change varied significantly between markets. Firms appeared to anticipate the effects of the new rules in different ways and consumers in turn reacted differently in each market.

        The evaluation results show that predicting the dynamic reactions to a policy change in advance is a difficult challenge.

          Summary of the intervention’s estimated impacts

            The rule changes introduced in August 2016, and effective from April 2017, were straightforward. When issuing renewal letters to customers, insurers were required to include:

              • the previous year’s premium, so customers could compare it to the renewal quote
              • a message encouraging consumers to check their policy provided the right cover
              • a message encouraging long-standing customers (renewing for the fourth time or more) to shop around

                The expectation was that, provided with this information, customers would be more likely to shop around, and if appropriate, switch provider or negotiate their insurance premiums with their current provider.

                  Share on twitter
                  Share on linkedin
                  Share on facebook