Insights on FCA Evaluation Paper 25/2
Introduction
The landscape of general insurance pricing has undergone a seismic shift in recent years, driven by regulatory scrutiny and a growing demand for fairness, transparency, and positive customer outcomes. Published on 22 July, the Financial Conduct Authority’s (FCA) Evaluation Paper 25/2 stands at the forefront of this transformation, offering a detailed analysis of the impact and efficacy of remedies introduced in Policy Statement 21/5 to overhaul General Insurance Pricing Practices (GIPP). For firms, understanding the nuances of this evaluation is not just a compliance necessity—it is a golden opportunity to reposition brands, build customer loyalty, and drive sustainable growth.
The Background: Why the FCA Took Action
The FCA’s journey towards remedying general insurance pricing practices began in 2020 with concerns identified in their Market Study MS18/1.3 about so-called ‘price walking’—the practice of increasing premiums for renewing customers while offering discounts to new customers. Over time, loyal customers, often less likely to shop around due to inertia or a lack of awareness, found themselves paying significantly higher premiums than new customers. This practice was not only unfair but also eroded trust in the insurance sector.
In response, the FCA introduced a suite of remedies in 2021 aimed at ensuring greater fairness and transparency in how insurers set prices for home and motor insurance. These remedies include requirements that renewing customers be offered prices no higher than those available to new customers and enhanced product governance to ensure policies deliver fair value. The FCA’s Evaluation Paper 25/2 takes a comprehensive look at whether these interventions have delivered the desired outcomes.
Key Findings of FCA Evaluation Paper 25/2
The FCA assessed the impact of the GIPP interventions across four key areas using data from 16 home insurers and 13 motor insurers. The evaluation paper offers a myriad of insights that helps firms shape the future of the insurance landscape. Key findings include:
- Reduction in Price Walking: The remedies have significantly reduced premium disparities between new and renewing customers, and as a result, price walking has largely been eliminated. This has helped rebuild trust and improve customer perceptions of fairness in the industry.
- Improved Customer Engagement: Customers are now more likely to review their insurance policies at renewal, thanks to clearer communication and better information provided by insurers. This lower attrition among longer-tenured customers and increased churn among new customers is consistent with FCA expectations around switching costs under fair pricing, creating more opportunities for engagement and value-driven conversations.
- Market Dynamics: While some market players have improved the quality of their products, evidenced is mixed. For example, cover limits increased slighted in home (suggesting quality improvements), but compulsory excesses in motor rose (suggesting lower quality). However, the overall competitive intensity remains high.
- Fair Value and Product Governance: Firms have made tangible progress in aligning their product offerings with the FCA’s fair value expectations. For example, in Q1 2022, premiums dropped sharply in both motor (5.9%) and home (6.6%), although the FCA believe there remains opportunities to further optimise products and communications. That said, these first year price impacts have translated into substantial savings, particularly in the motor market.
What This Means for Insurers
The FCA’s findings are not just regulatory updates—they are catalysts for innovation and customer-centricity. For example, firms could consider:
1. Building Trust as a Differentiator
Trust is now a central battleground in insurance. Brands that can demonstrate genuine commitment to fairness, transparency, and long-term customer value will stand out in a marketplace where pricing is more tightly regulated. Firms should leverage the changes in pricing practices as proof points in customer communications, highlighting the end of unfair price hikes for loyal customers and the brand’s alignment with regulator expectations.
2. Personalised Engagement and Value-Added Services
With the playing field levelled on price, customer experience and value-added services become the new differentiators. This is a prime opportunity to reimagine marketing campaigns—focusing on how your firm goes beyond price to deliver peace of mind, convenience, and tailored solutions. Content marketing, educational initiatives, and proactive renewal dialogues can position your firm as a trusted partner rather than a mere provider.
3. Data-Driven Strategies to Understand Evolving Behaviours
The FCA’s remedies have spurred a shift in customer behaviour: increased switching rates, more engagement at renewal, and a greater appetite for information. As such, firms need invest in analytics and customer insights tools to track these changes, identify emerging needs, and develop targeted products and services that resonate with evolving consumer expectations.
4. Enhanced Product Governance as a Selling Point
The FCA highlights improvements in product governance and fair value delivery. This means that firms are now challenged to ensure that every aspect of their product—coverage, exclusions, add-ons—deliver good customer outcomes. Firms can use this progress as a differentiator, reassuring customers that products are not only competitively priced but also robust, well-designed, and consistently reviewed for relevance and fairness.
Challenges and Opportunities
While the FCA’s evaluation points to broad improvements, it also underscores ongoing challenges that firms must address. For example:
- Continued Pressure on Margins: The reduction of price walking limits the ability to cross-subsidise between new and existing business. This may compress margins, making it essential to find efficiencies elsewhere. For example, greater use of technology and AI to semi-automate claims and complaints handling.
- Customer Retention in a Switching Market: With switching rates on the rise, retention strategies must focus on holistic customer experiences, loyalty rewards, and ultimately good customer outcomes.
- Competitive Creativity: As price becomes less of a differentiator, creativity in product design and marketing communications will be key to capturing and retaining attention in a crowded marketplace.
Powering Growth in this New Era
In summary, for firms to thrive in this new regulatory environment, it is essential to consider the following:
- Transparent Communications: Ensure all customer touchpoints—websites, emails, call scripts—clearly explain how pricing works, what has changed, and how it benefits the customer to facilitate better customer understanding consistent with Consumer Duty.
- Value-Focused Messaging: Move beyond price-led conversations to focus on the value, service, and the security that the product provides consistent with the customer’s needs.
- Continuous Feedback Loops: Gather and act on customer feedback and customer outcome testing results to refine products and services, solving pain points quickly.
- Upskilling Teams: Provide regular training to colleagues on regulatory changes, consumer psychology, and new product features to keep teams ahead of the curve.
- Leveraging Technology: Invest in CRM systems, automation, and AI to streamline operations and assurance activity.
Conclusion: Seizing the FCA’s Remedies as a Growth Lever
The FCA’s Evaluation Paper 25/2 is more than a regulatory review; it is a call for renewed customer focus and brand innovation. For firms it offers both challenges and unprecedented opportunities. Those who embrace transparency, invest in customer engagement, and position their products and services for maximum value will not just comply—they will lead.
Now is the time for firms to distinguish themselves through integrity, relevance, and excellence in service. The remedies set out by the FCA, and their measured success, provide a solid foundation for this new era in general insurance—a landscape where trust, fairness, value and good customer outcomes are the ultimate currency.
If you would like to discuss any aspect of the FCA’s GIPP remedies or any other conduct related matter, please contact us at: hello@square4.com
Darren Fisher – Senior Advisory Director (Insurance)
