It’s great to see the PIL crew and, in some cases their four-legged friends, looking resplendent in the new Percayso Inform polo shirt.

Just a shirt note

The proposals from the FCA to end ‘opaque’ pricing techniques, particularly in the home and motor insurance markets, have been described by the regulator’s own interim CEO as a “radical shake-up”.
While the main talking point is the proposed ban on price walking, the FCA is also consulting on product governance rules intended to deliver fair value to all insurance customers. This means that it also brings into the ban any add-ons and premium finance, which could have a profound impact on the income earned by insurance brokers.
Reading the following lines from the FCA’s consultation report, it appears that the regulator plans to make brokers justify any mark up in commission from what they wholesale from a premium finance house to the final interest charged to the customer.
“….. where the firm proposes premium finance with a higher annual percentage rate (APR) than would be available elsewhere (for example, directly from the insurer, or from another finance provider), based on the remuneration the firm will receive, this may conflict with the firm’s obligations including the customers’ best interests rule.”
One premium finance provider has described the proposal as “earth shattering” and as some brokers have built this credit selling tool into their business models, it could have a devastating impact on their long-term profitability as a business. According to Consumer Intelligence data, some brokers charge anywhere between 13% and 20% compared to direct insurers, which typically charge between 8% and 13%.
This proposed move by the FCA isn’t necessarily specifically targeting brokers – it’s more about preventing any insurance firm compensating for losses on changes in dual pricing by maximising revenue at the back end through the likes of premium finance charges. The regulator said, in its consultation report:
“We will look closely at firms increasing the cost of premium finance to offset changes to the cost of the insurance product.
“Where the customer faces higher costs for the insurance product as a result of paying on credit, for example, due to a higher premium compared to the cost if paying without credit, the additional cost may constitute a credit charge and, if so, the APR must reflect these costs.
“If it does not, firms may be in breach of the Consumer Credit Act 1974 and the associated regulations.”
&nbsp;Now of course this is still a proposal and there could be modifications once the consultation is complete and the FCA has more data. However, any reduction in the interest rates that brokers charge customers on premium finance could have serious repercussions. So how can they make up this potential shortfall in their finances?
I think the key is not to focus on the premium finance aspect itself, rather on getting pricing strategies and levels right from the offset – and the key to making accurate decisions about risk and pricing is to be able to get a true picture of the customer.
The best decisions are always based on the intelligent use of accurate and – most importantly – up-to-date consumer data. This requires accessing multiple industry and third party data points and combining those into a single customer view in addition to using new data sources such as open banking data which provide a clear view of shift’s in a customer’s lifestyle, spending patterns and financial status, and delivers a clear view of the risk they pose alongside their likely lifetime value.
This intelligence led approach enables brokers to offer each customer a premium that allows the business to make an appropriate margin, and reduce any dependency on inflating the interest rate on the premium finance to bolster the profit.
Given the FCA’s laser-like focus on delivering fair value to all customers, having a tight and well thought through data enrichment strategy can help ensure that brokers can demonstrate to the regulator that they understand their customers and are setting appropriate premiums that flex in line with the individual behaviour of each customer. Who could take exception to that?

Do current premium finance practices meet fair value objectives?

This morning Evermore Digital released the thirteenth in its web-series profiling the very best InsurTech has to offer.&nbsp; 
Host Ed Halsey, was joined by Rich Tomlinson of Percayso Inform, which is ushering in the next generation of insurance intelligence.
See the interview below:
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Evermore Digital interviews Percayso Inform - Rich Tomlinson

Percayso Inform is delighted to support the @Managing General Agents’ Association MGAA Marketplace event on 25th November and are looking forward to meeting with a host of expert MGAs &amp; market practitioners to explore how our expertise can complement their businesses. See the link below for further details and to register:
<a href="http://ow.ly/y6kC50CfDd5">http://ow.ly/y6kC50CfDd5</a>

MGAA Marketplace event

Following its review of pricing in the home and motor insurance markets in which it found that around six million consumers are negatively impacted by dual pricing practices, the FCA is now proposing a raft of measures designed to ensure that firms focus on providing fair value to all their customers.
In its report, the regulator slammed the markets for “complex and opaque” pricing practices, including raising prices for consumers that renew year on year and using practices that “make it harder for people to leave”.
Amongst the measures that the FCA is proposing are requirements on firms to report certain data sets so it can check new rules are being followed. While the regulator will be seeking details of average premiums charged through different sales channels, it is also looking to gather expected claims cost and expected claims ratio information.
According to Christopher Woollard, Interim Chief Executive of the FCA, the driver behind this package of proposals is to “ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers.” But it’s also about improving competition, leading to lower costs for supplying insurance and ultimately lowering the prices paid by consumers on average. The FCA estimates that its proposals should save consumers £3.7 billion over 10 years.
So with the consultation process underway and new rules probably coming into effect sometime in the second half of 2021, there’s never been a better time for insurance businesses to review not only the data they’re currently capturing but the data they could be using to enrich their view of each and every customer.
The ability to access data from multiple sources and crunch that with the information they already hold or gather about their customers enables a clear view of a customer’s lifestyle, spending patterns and financial status both now and in the future. Analysing these metrics for trends enables an insurance business to better understand each risk, what influences an individual’s behaviour and the impact this may have on their claim and fraud risk.
For example, in the world of motor insurance, additional data sources include reciprocal (contributory) datasets such as SIRA, which share known fraudulent behaviour while CUE can be used to corroborate stated versus actual claims. It’s possible to access enhanced vehicle data confirming a vehicle’s history and status and NCD confirming an individual’s no claims discount, as well as datasets such as the Mylicence data providing key information on an individual’s licence history and details allowing checks to be made in real time.
Ultimately this needs to translate to a better view of lifetime customer value and getting the price right from day one rather than the low price to win and then gouge at renewal, which is a huge focal point for the FCA. Its market study reported that the average difference in the price of motor insurance between new customers and customers who renewed with the same provider five or more times was 30%, and this leaped up to 74% for buildings and contents and a staggering 83% for buildings insurance.
And as insurance customers are demanding a faster, smoother quote journey without having to answer reams of questions, some of which they may well not understand, having this complete picture can make it far easier for an insurer or broker to deliver the right quote first-time from the response to a brief and easy to answer question set.
Accessing one or two key datasets that are most pertinent to a business’s products and goals can significantly improve not only the predictive power of a single source of data, but also deliver significant competitive advantage. Insurers and brokers alike should be exploring the rich vein of data now available to them and how they can use it to offer their customers a more personalised and accurate premium as well as improve loss ratios and reduce fraud.
It’s also important to remember that intelligent data enrichment isn’t limited to informing pricing and fraud strategies; rather, accessing and analysing the right data can help firms to identify the most appropriate add-on products or even different product lines that could suit the customer, serving to reinforce and differentiate the firm’s value proposition to their customer and, who knows, even go some way to helping build trust.
Surely all this adds up to the better overall outcome that the FCA is looking to achieve?