Civil Liability Act - FCA reporting

The FCA intends to send out a Qualtrics (cloud-based) survey to all insurers in September 2023 that will enable them to either:

• inform the FCA that they are out of scope; or,
• provide the required information.

The template gives some details on the information that needs to be provided. Firms should refer to this template in preparing information for reporting.

Background

The Civil Liability Act 2018 (the Act) received Royal Assent on 20 December 2018. It reforms the system for whiplash claims and the framework for the Personal Injury Discount Rate (PIDR) to benefit consumers and taxpayers.

The PIDR is a percentage used to adjust the lump sum awards for future losses, costs and expenses received by victims of life-changing injuries to account for the amount they can expect to earn by investing their awards.

To ensure that the cost benefits from these reforms are passed on to customers, the Act imposes a requirement on insurers to provide information to the FCA. This covers claims costs and premiums against the expected figures had the Act not come into force.

Time period

• Information should be provided to the FCA in one return by 1 October 2023 for each of the three years within the reporting period (starting 1 April 2020)
• Insurers who already priced in some changes in anticipation of the Act may want to demonstrate this and could gather information for up to two years before April 2020
• This means that in practice firms could gather and submit the relevant information from April 2018 (covering five years instead of three)

Scope

• Insurers who issue third party personal injury insurance policies (predominantly as part of motor insurance policies) to individuals in England and Wales fall within the scope unless their number of policies falls below the threshold
• The threshold is having more than 100,000 relevant policies in any full year of the reporting period
• Firms should declare whether they are in scope (with over 100,000 relevant policies) and notify the FCA without delay when these conditions are met
• If an insurer meets these conditions in one reporting year, but has fewer than 100,000 relevant policies in another, they will not need to provide the full information in the year(s) they did not meet the threshold. Instead, written confirmation of this will suffice for the relevant year(s)

Specific requirements

The information to be provided to the FCA should be audited by a qualified auditor and be accompanied by a statement to verify this for each report year.

Figures should be gross of reinsurance, legal costs and so on unless otherwise specified. In summary, the report covers:

• The total gross amount of the value of claims settled under private motor insurance policies in respect of personal injuries sustained by third parties
• The mean of the amount above per policy
• Separate totals for claims where the amount awarded under each policy was:
  • £100,000 or less; and,
  • over £100,000.
• The total gross value of the premium earned for private motor insurance policies where the period of cover began in the report year
• The mean of the gross value of the premium per policy earned in respect of these policies

Firms will be required to calculate counterfactual figures (i.e. what the figures would have been if the reforms had not come into force) for each of the following:

• Total claims costs
• Mean claim cost
• Total premiums charged
• Mean premium charged

These will need to take into account:

• the preceding two years’ data, where available
• any costs, profit or price projections calculated in advance of the reforms 
• any trends in the insurance market which could have an impact

As with information about claims costs and premiums, this counterfactual information for each report year needs to be examined by a qualified auditor.

Insurance mediation and reinsurance

If applicable, insurers should disclose the total value of reinsurance recoveries related to the claims reported. This should include amounts expected as well as those already collected, applying “best endeavours” to allocate the appropriate amount to the reported claims.

Insurers do not have to specifically disclose intermediation and reinsurance costs. However, they may choose to include this detail if it is deemed reasonably relevant to assessing whether benefits have been passed on to consumers.