We evaluate the impact of our April 2017 intervention to increase transparency at renewal in general insurance markets.
We have published an evaluation of one of our past interventions. We committed to undertaking evaluation in Our Mission[1]. We set out the framework for doing ex post impact evaluations[2] in December 2018.
Read Evaluation Paper 19/1 (PDF)[3]
Background
We made new rules and guidance[4] in August 2016. These required firms proposing the renewal of general insurance products to make the following changes to their renewal communications by 1 April 2017:
- Show the premium to be paid on renewal and the last year’s premium at each renewal, so that they can be easily compared.
- Include text encouraging consumers to check that the level of cover offered is appropriate against their needs and that they are able to shop around.
- Where the proposal relates to a fourth or subsequent renewal include an additional prescribed message encouraging shopping around.
We wanted our intervention, which was informed, in part, by large-scale randomised controlled trials[5], to:
- Prompt consumers to pay greater attention at renewal, engage, shop around, and make better informed decisions.
- Improve firms’ treatment of existing customers by focusing on, for example, pricing strategies and renewal practices and, as a result, improve consumer outcomes.
- Promote effective competition by encouraging consumers to shop around.
This evaluation was announced when we published the terms of reference[6] for our general insurance pricing practices market study in October 2018. We are publishing the evaluation alongside the market study's interim report[7].
Our evaluation
We estimate consumer savings of between £39 million and £330 million a year (with an average estimate of £185 million a year) due to our intervention, set against costs of around £4 million a year. We believe these benefits have arisen due to 2 main, inter-related effects, which differ in size between home, motor and pet insurance markets:
- Firms’ increased focus on renewal practices, such that premiums offered at renewal for home and motor insurance have not increased by as much as they would have done without our intervention.
- Consumers being prompted to make better informed decisions through engaging and shopping around, leading to changes in consumers negotiating or switching at renewal (increasing in motor and pet insurance and decreasing in home insurance).
We have identified some lessons that we can apply to current and future work. The work improves our understanding of how firms might change their pricing in response to our interventions, which is typically hard to estimate before we intervene. The evaluation also reinforces the need to consider how trial evidence would apply, for example, across different markets and the dynamic effects that are not visible in trial settings.
More information about the impact of our intervention in our Evaluation Paper 19/1[3].