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What is Fair Value and what does it mean for the insurance market?

Fair value is the overall benefit that consumers receive from buying a product or service, relative to the total cost that they incur.

On 1st January 2022, The Financial Conduct Authority made a new ruling. These rules came into effect for Home & Private Motor insurance. The new ruling aims to provide better outcomes to customers, known as ‘Fair value’.

Whilst we’re predominantly a commercial insurance broker, the new ruling affects our high-value household policies.

Key changes

The new rules have brought some key changes to the way General Insurance works:

  • Equivalent policy premiums should not be higher for existing customers than for new customers.
  • During the term of cover, at any time a policyholder may opt-out of auto-renew.
  • If the policy price is greater when paying per month than per year, the provider (broker where applicable) must make this known.

Premium reductions?

It is possible that renewal premiums will drop. The FCA guidelines require the renewal price to be the same as, or lower, than the equivalent price for a new client.

A changing claims market, laws, increased repair costs and severe weather however also have an impact on premiums.

On the whole, renewal prices will likely decrease. The most noticeable price difference is at the first renewal after the regulation change.

Premium increases?

Insurers had to change price calculations due to the new ruling.

It is likely that overall, prices for new customers will rise across the industry.

Are you receiving fair value?

Determining fair value goes beyond price. A reputable, experienced insurance broker should be providing value beyond this.

  • They should ask multiple questions to ascertain your exact needs.
  • They should inform you about elements of cover which you may not know of.
  • They should help you understand what your policy doesn’t do and understand what you would pay for the equivalent if you went elsewhere.

To ensure you’re receiving fair value:

  • Shop around.
  • Speak to a few brokers.
  • Ensure you’re delighted with the service not only the price.

Broker commission changes?

Some broker commissions are being reduced. Some insurers are adapting to the new rules by introducing new commission structures.

We’re studying commission changes to ensure we understand the impact.

How are we responding to our clients’ renewals?

In our view, the new FCA ruling on what is known as ‘price walking’ is a positive change. This change places more value on the service and advice given.

In response to the new ruling, we will:

  • continue practicing proactive industry research to find our clients the best deals
  • add a clear option to opt-out of automatic renewals (e.g. when a client pays by direct debit)
  • review procedures for informing clients about monthly premium finance plans versus an annual payment

Our staff are trained to offer expert guidance on recommending the right policy for the client, regardless of price. We remain a values-driven business that protects our broker’s wealth and the client’s assets.

You can view the FCA’s final report here >

If you have any further queries about our products or service, please contact us >

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