27th September 2020

S&P Global Ratings says FCA proposal to tackle insurance pricing may hurt UK insurers' profitability-no immediate ratings impact expected
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S&P Global Ratings today said the Financial Conduct Authority's(FCA) proposal to address the pricing on renewals for motor and home insurance policies is a significant reform for the industry.
"We believe it could radically change the way insurers price policies for existing and new customers in a way not seen since the introduction of the EU gender directive. However, we believe the proposal, if implemented, could reduce some of the conduct risks hanging over the sector regarding the fair treatment of loyal customers.
As insurers are likely to be prevented from gradually increasing renewal prices to consumers over time(known as "price walking"), some home and motor insurers may see their margins erode in the short term. The FCA estimates that its proposals will save consumers £3.7bn over 10 years. If this is converted to annual loss of premium to insurers of £370m per year, then, compared with property and motor segments' combined net premium income, excluding commercial business of £12.1bn as of Dec. 31, 2018 (according to ABI's 2018 annual general insurance overview statistics), this is not material in the industry context.
We do not expect the reform to have an immediate impact on our ratings on individual insurers because we believe that insurers will quickly adapt their pricing algorithms. And for the groups we rate that do write UK home and motor business, these lines are part of diversified product offerings, reducing the impact of any hit to profitability in the short term.
We do view this as a positive development for the industry, particularly for policyholders, because the proposed rules are estimated to save them money and to protect them from unfair pricing behaviours. The insurance industry will also benefit, since these rules will limit the industry's exposure to social risk factors associated with treating customers unfairly.

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