You will no doubt be aware that the Financial Conduct Authority (FCA) recently introduced new rules setting out new pricing practices for insurers and insurance distributors.

The FCA’s objective is to improve the way the general insurance market functions, in particular by ensuring that firms and their products offer “fair value” to its customers. The new rules also aim to prevent certain firms from “price walking” and increases transparency for some customers when renewing their insurance products.

We have produced the following Q&A to inform and update our broker partners with the work which has and will be undertaken at Folgate Insurance Company Ltd to ensure compliance with the new rules (or relevant parts of it).

Product Governance – Achieving “fair value” for customers

What is “fair value”?

The new rules define “value” as the relationship between the overall price to the customer and the quality of the product(s) and/or services provided.

Manufacturers (& co-manufacturers) of non-investment insurance products are now expected to review each product (including add-on products sold alongside them), regardless of when they were manufactured, at least every 12 months. This is to ensure that the product offers fair value to consumers for a reasonably foreseeable period and that any distribution channel used also results in fair value to customers.

In assessing whether a product offers “fair value”, firms would need to consider various things including: (a) the nature of the product, its benefits, their quality and limitations; (b) the type and the quality of services provided to customers; (c) expected total price to be paid by the customer and its components; (d) how intended distribution arrangements support the intended value of the product.

The new product governance rules are outlined in the FCA Handbook under PROD 4.2.

When did the new Product Governance rules become effective?

1^st October 2021

How do the fair value requirements affect Folgate?

Our product governance and oversight procedures were updated to reflect the new rules in advance of them becoming effective.

As per the new rules, an assessment of every Folgate manufactured product will be undertaken at least once every 12 months, from the date the new rules become effective, and you can expect to hear from us over the coming months as we undertake our new format product assessments.

Folgate will follow the advice issued by the FCA, Lloyds Market Association (LMA) & London & International Insurance Brokers’ Association (LIIBA) in terms of how we structure our product assessments and the information subsequently shared with our distribution network.

Pricing Remedy

What is “price walking”?

Price walking, also known as the “loyalty penalty” or “dual pricing”, refers to when new insurance customers receive more competitive and cheaper premiums compared to long-standing customers renewing their cover.

The rules now state that the price offered to an existing customer at renewal must be no higher than the equivalent new business price (ENBP) i.e. the price offered to a new customer for an equivalent cover.

When did the new pricing rules become effective?

1^st January 2022

Do the new price walking rules affect Folgate?

No. The new pricing remedy affects the Home and Motor sectors of the insurance market, in which we do not manufacture any products and we do not participate.

Whilst Folgate are unaffected by these new rules, we are mindful of the FCA’s objectives when reviewing our own product pricing structures.

Cancelling Auto-Renewing Policies

What are the new rules?

The FCA’s new auto-renewal rules state that affected firms must now:

• explain clearly to customers at point of sale whether their policy is set to renew automatically.
• provide consumers with a range of accessible and easy options to stop auto renewal of policies and not place unnecessary barriers in the way of consumers who want to opt out of auto renewal.
• communicate the options available to consumers to stop their contract from auto renewing at point of sale (and in good time before renewal).

When did the new auto-renewal rules become effective?

1^st January 2022

Do the new auto-renewal rules affect Folgate?

No, these new rules apply only to retail general insurance products. Folgate do not offer insurance direct to retail customers and therefore the new rules do not affect us.

Whilst Folgate are unaffected by the new rules, we can advise that we do not provide an auto renew function on any of our products and each individual renewal must be confirmed by the broker.

Contact The Business Development Team:
0207 256 3100
businessdevelopment@folgateltd.com