This new legislation will inhibit insurance providers charging regular, loyal customers a higher premium when their policy automatically renews, compared to new customers who are often offered better, cheaper deals. The ban is expected to come into play from January 2022 and is predicted to transfer a value of £4.2bn from insurers to consumers over the next 10 years.
However, a key issue with this new FCA regulation is that it fails to consider that the attractive, business rates used to entice new customers are not profitable and are only feasible because of loyal, regular customers accepting price walking. Therefore, as a result of the ban, it is likely that insurers will increase their new business rates instead. Yet, not all providers will do this as those that have adapted with tech-enabled innovation will be best positioned to take advantage of new opportunities.
The new regulation states that insurers must not put existing customer’s prices up for no stated reason. The FCA has however outlined that insurers should adjust prices if they have telematics data that informs about the potential risk. Therefore, systems like LeakBot offer a new approach for home insurance. Policy terms are being changed to ask customers to fit a free LeakBot device and to arrange a free repair service if a problem is detected as a condition of the policy. If the customer does these things the insurer now reliably and accurately knows who has a leak and who doesn't and also if that leak has been fixed or not - and can adjust pricing in accordance with the risk. This is a demonstrably different and new alternative to the status quo, with better economics and fewer claims.
The advantage of telematics use can also be seen when looking at future-proofing business activity. For example, it is important for insurers to review their business practices carefully in an effort to identify propositions, such as telematics initiatives, that may enable them to better navigate future uncertainty. Fortunately, telematics-based insurance cover can provide an opportunity to manage short-term losses and mitigate long-term risk. As a result, smart telematics are becoming increasingly attractive. What may once have been seen as a ‘nice to have’ is fast becoming a necessity.
Not only can putting in place a telematics-based model aid in protecting against loss and premium increases but it also helps to empower policyholders to take a much greater stake in their own cover by encouraging responsibility and positive consumer behaviour. This could then deliver further savings on premiums in the long run.
So, by making the switch to telematics-based insurance cover, insurance providers will not only be able to provide much more attractive new business rates to their customer base in the light of the FCA announcement but will also be able to empower customers to take ownership of their policy and ensure that their continued, future premiums also remain low. The winners are customers and insurers alike - the tech-savvy and customer-focused insurers that is.
