Car insurance prices have become increasingly more expensive since the Coronavirus pandemic, surpassing pre-pandemic average costs to insure cars despite a general reduction of road related deaths. Regulations at this time allow for consumer price gouging and cause hardship for many with no benefit.
A comission should be organised to investigate the regulatory practices of car insurance pricing and to ensure of fair competition.
A commission should look at alternative models. For example, in four provinces of Canada car insurance is a government-owned and operated system, a similar system in the UK could not only provide a potential additional revenue stream for the government but also limit the financial hardship caused by purchasing 3rd party insurance from private companies which maintain primary responsibility to earnings of their shareholders.
Monday 22nd January 2024
Insurance pricing is a commercial decision for insurers. The Financial Conduct Authority, as the independent regulator, requires insurance products to offer fair value and has powers to act.
The Government is aware of the current increases in the cost of motor insurance for many households, as well as the challenges facing households due to the increased cost of living.
The Government does not prescribe the terms, conditions or price that insurance companies may set when offering insurance. Insurers make decisions about the terms on which they will offer cover following an assessment of the relevant risks. This is usually informed by the insurer’s claims experience and other industry-wide statistics. At present there are wider economic factors, such as the increased costs of materials and labour in supply chains, that are contributing to increases in claims costs and therefore insurance premiums.
The Government does not intend to intervene in these commercial decisions as this could damage competition in the market.
However, the Government is determined that insurance companies should treat customers fairly. The Financial Conduct Authority (FCA), as the independent regulator of financial services, has the strategic objective of ensuring that the markets it regulates function well. In general terms, it also does not prescribe the terms, conditions or prices set by insurers, but may take action to achieve its objectives. For example, in 2022 the FCA introduced rules to prevent firms charging higher renewal premiums that exploited loyal customers.
Under FCA rules, firms are required to ensure their products offer fair value (i.e. the price a consumer pays for a product or service must be reasonable compared to the overall benefits they can expect to receive). The FCA has been clear that it will be monitoring firms to make sure they are providing products that are fair value, and, where necessary, it will take action.
In addition to requiring insurance company’s products to offer fair value, the FCA has a statutory objective to promote effective competition in the interests of consumers. The FCA works towards this objective, as far as the work is compatible with advancing its other objectives. The FCA can also enforce against breaches of competition law for the provision of financial services generally, alongside the Competition and Markets Authority. All businesses, include insurers must comply with competition law.
Given the already existing remits and powers of the FCA and CMA, the Government does not intend to establish a Commission to investigate motor insurance premiums at the present time. The Government will continue to monitor the motor insurance market closely and continue to engage with both the regulators and the insurance sector.
HM Treasury