GI pricing practices and product value
The Financial Conduct Authority (FCA) proposed new rules to come into effect in 2021.
The FCA published policy statement PS21/5 with its final rules on GI pricing practices in May 2021. We are now in the ‘implementation period’ with the rules coming into force on:
• 1 October 2021 for systems and controls (SYSC) and product governance (PROD).
• 1 January 2022 for premium finance disclosure, pricing and auto-renewal remedies, reporting requirements, and related glossary and administrative changes.
There is some additional time to implement the changes relating to pricing and autorenewal disclosure. These rules will come into force on 1 January 2022, however the FCA has added a transitional provision that allows firms until 17 January 2022 to have the required processes in place, providing they backdate benefits to customers from 1 January 2022. There are four key areas that have been updated: Pricing, Product governance, Auto-renewal, and Reporting. We have delved further into each area below:
Pricing
The pricing remedy is broadly in line with the proposal outlined in the consultation paper, however the changes include:
1. Incentives
2. Closed books
3. New or missing risk information
4. Anti‑avoidance provisions
Product governance
There were minor changes to the proposed product governance rules, which aim to make sure products offer fair value to customers:
1. Considering product value for a ‘reasonably foreseeable’ period
2. Compatibility with other requirements
3. Attestation requirements
4. Reporting requirements and record keeping
Auto-renewal
The FCA proposed to allow consumers to opt‑out of auto‑renewal by telephone, post, and email or online. Some firms expressed they do not offer all these channels of communication. As such, firms need to take the following changes into account:
Reporting
The FCA had proposed reporting requirements for monitoring home and motor insurance markets to ensure compliance with the pricing remedy and identify any customer harm.
Quarterly reporting in the first year was amended to allow firms more time to make the necessary changes to systems and reporting processes. In the first year, firms are to report a single interim report covering the six months ending 30 June 2022. This must be reported by 30 September 2022.
Certain reporting requirements have been removed, including:
The FCA also introduced a few additional reporting requirements including:
If you have any questions regarding the new GI pricing rules, please feel free to get in touch via the form below. One of our Regulatory Compliance team would be delighted to help.
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