The regulator will collect data on a "small number" of products and make it publicly available in a 'scorecard' format for the duration of the pilot project, which will begin in the summer and run for 12 months, it has announced. It will use the findings from the pilot exercise to feed into a formal proposal, as well as to ascertain the costs and benefits of the scheme, according to the announcement.
The FCA consulted last year on three potential methods for calculating the relative value of general insurance products, after it market study in 2014 found that too many consumers were purchasing poor value, unnecessary products. The scorecard was one of three methods put forward for consultation, and was the option "marginally favoured" by firms, it said in its consultation response.
"We believe that publishing a range of information will help to boost competition between firms, encouraging them to focus on improving the value and performance of their products whilst giving stakeholders and consumers more insight into the value they offer," said Christopher Woolard, the FCA's director of strategy and competition.
Data to be collected by the FCA as part of the pilot will include claims frequencies, claims acceptance rates and average claims payouts, and may also include details of average premiums, the FCA said in its response. The idea is "to demonstrate how often consumers are likely to claim on a product, how likely those claims are to be accepted and the average claims payout", it said.
The FCA said that it favoured the scorecard approach due to its potential to provide "a wider breadth of information about [general insurance] products sold to consumers". It has ruled out requiring firms to publish either a standalone claims ratio as a percentage of premiums paid, or this figure plus claims acceptance rates, following feedback from insurers.
"There was strong opposition to the claims ratio measure from firms; they considered it too complex for consumers to understand and ineffective for delivering a rounded assessment of value," the FCA said.
"A number of industry respondents remained concerned about the risk of unintended consequences from the publication or disclosure of any value measure data, such as confusion created by the publication, particularly in terms of point of sale disclosure. There was a concern that consumers would not be able to adequately assess the value measures information, in addition to the consideration of both price and product features," it said.
The FCA will not require firms to display claims value data at the point of sale at this stage, saying that it instead preferred "publication as a market transparency remedy".
The FCA's concerns about competition between general insurance product providers date back to its July 2014 add-on market study, during which it found that firms were under little pressure to compete because consumers purchasing these products were less likely to shop around. It has since banned pre-ticked boxes and opt-out selling as a means of encouraging greater consumer choice and participation in the purchase process, as well as new rules specific to motor vehicle guaranteed asset protection (GAP) insurance sales.
As part of that study, the FCA identified examples of poor value add-on and standalone products when measured as a proportion of the value of claims paid out to premiums collected. In some cases, these low claims ratios had existed for a number of years, indicating that firms were not under pressure to improve value, it said. In addition, the lack of a commonly available measure of value meant that consumers were not able to make value judgements at the point of purchase, it said.
The FCA intends to publish claims value data on selected products twice during the pilot process: at the beginning of the pilot, and then again at the end. It therefore envisages that the published data will cover two one-year periods. The regulator will "engage with stakeholders" about the design of the pilot ahead of the launch, it said.