Fair value rules still fail brokers and consumers alike

If we look at Prod 4.2.14E (in place since 1 October 2021) I see this as a pair of old-fashioned scales where on one side we have the cost and on the other side we have the quality of the product and services to be provided.  

We are looking for balance or clear value for the price being paid.

The focus should be on policy benefits (assessing quality and limitations) and the type and quality of services provided (the broker bit of the equation).  

What do we have to rely on so far? Limited claims acceptance rates and complaints data but these are not number crunched or made available in a comparative way to enable insurers to compare themselves with each other or to enable brokers to use in a way to shape the advice they will give. 

Branko Bjelobaba, Branko Ltd

The FCA expect the pricing model and each component part of the premium to be fair value validated and they want insurers to know what the cost will be of underwriting and operating the product fully.  

Finally, they also want evidence to ensure that the intended distribution arrangements and costs will not adversely affect the intended value of the product.  

All of these factors should be weighed up, but what does the industry actually have to put in the mix?

In the mix

For the last four-and-a-half years we’ve had some limited metrics but by no means everything that should be in the mix to determine conclusively that the product does, indeed, provide fair value. 

What do we have to rely on so far? Limited claims acceptance rates and complaints data but these are not number crunched or made available in a comparative way to enable insurers to compare themselves with each other or to enable brokers to use in a way to shape the advice they will give.  

If we look at investment products, we can see how well they have done, risk factors, what costs are taken, etc, and direct comparison is indeed possible.

Despite the efforts of the broking profession, most insurers are simply not interested in engaging and are still unwilling to provide a full set of data as viewed as ‘commercially sensitive’. 

That’s all well and good, but when it’s the FCA who require the information, via a broker, we know that they’re in a really difficult place.

Some insurers simply refuse to provide the data needed as it is viewed as “nice to have” as opposed to “regulatorily obliged to provide”.  

Once some data is received, it is rarely complete, the basis of calculation is unclear and so unlikely to be repeatable and you cannot use it to compare with anyone hence it is totally useless for the man on the street to use to shop around and difficult for a decent broker to use too.  

If we had metrics akin to food labelling and home energy, things would be much simpler.

I spoke to a friend at a big insurer and he didn’t disagree but stated “the nebulousness is a function of the vague regulation language that has just then wasted everyone’s time."

So, what can be done? 

When I spoke to the FCA they said it was for the industry to collaborate and agree the metrics that will establish fair value comprehensively and conclusively and then use and present this data in a meaningful way.  

How then? 

Step forward Insurance Data Lab as one suggestion. 

The firm exhibited at the British Insurance Brokers’ Association Conference and provide a benchmarking platform that looks at all aspects of insurer performance including GWP, claims, complaints and solvency by business line.  

Matt Scott, co-founder and chief product officer gave me a demo and I was impressed (this being publicly available data). 

He argues that having access to this data will inform placement decisions and I do agree with him and am continually asking the question – what do insurers then have to fear and why, after four-and-a-half years, have they still not found a solution?