The Financial Conduct Authority will make a new assessment of the state of the car insurance market this year, following calls in parliament and elsewhere for a response to spiralling prices.
The promised insurance review won’t be a full market inquiry, which the FCA last carried out in the sector in 2019, but we’ve been told the assessment will include a full evaluation of the impact of new pricing rules introduced in 2021, and will look at concerns about insurance add-ons and additional costs.
“We are acutely aware of the growing concern about the cost of purchasing motor insurance,” the regulator says. “While we do not set or control insurance prices, we are monitoring the motor insurance market closely to ensure customers are receiving fair value.”
Recent calls for action include a letter written by Carla Lockhart MP to the Treasury, “suggesting that the government, in their engagement with the FCA, press for closer scrutiny of the industry”. Lockhart also reflected the views of many drivers in a parliamentary debate, stating that her constituents are up in arms at “the exorbitant cost”.
Auto Express’s own investigation into rising premium prices revealed that drivers across the board are facing increases partly because new technology has ‘broken’ the traditional underwriting models. For example, insurers who are unable to accurately assess risk when it comes to electric car battery repairs and replacement due to lack of existing data, are pushing up premiums across the board instead of targeting those specific models where costs may be unknown.
While spreading risk across the market has always been a factor, as the gap widens between the cost of repairs for an average car and increasingly tech-laden new models, this inflationary effect on premiums could be seen as unfair by drivers of more modest vehicles. However, the FCA told us that its rules do not prescribe how insurers assess and price risk strategies, provided that the overall product generates fair value to its target market.
In its most recent analysis, the FCA says consumers have seen annual premiums increase on average by just 21 per cent since June 2022, but acknowledges it has observed some much higher rises, and predicts further increases in the year ahead. Other industry watchers have reported much higher rises already, and the Association of British Insurers’ own figures say premiums rose 25 per cent higher on average across 2023, with a 12 per cent increase in the last quarter.
As a regulator, the FCA doesn’t control or set prices but it does have a duty to ensure that markets are working efficiently and in the interests of consumers. However, it has previously said that the insurance market is highly competitive, with firms incentivised to offer lower prices to attract consumers.
That suggests anyone hoping for an effective intervention with the impact of recent Competitions and Markets Authority action on poor competition in the petrol and diesel market, may be disappointed.
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