General insurance value measures data 2023

In September 2023 we wrote to manufacturers of Guaranteed Asset Protection (GAP) insurance asking them to address our concerns over value. We identified that in some distribution chains, as little as 6% of premiums were paid out in claims. Where firms were unable to adequately quantify the value, we agreed that they would stop selling GAP insurance until they could demonstrate this. Some firms have now restarted selling GAP products, having made changes and demonstrated their value.

Our latest data collection continues to highlight some products that do not appear to be delivering fair value as required by PROD4 and the Consumer Duty.

Senior Leaders (SMFs) and board members should take note of our actions on GAP insurance and must satisfy themselves that firms are compliant with Prod 4 and the Consumer Duty. They must make sure they are satisfied that the products they offer provide good value to consumers. Where our data suggests that value appears low, we will be in touch with firms later in the year to understand their products and the actions they have taken to improve value. Where we believe a firm has failed to act and is still providing poor value products, we will intervene where necessary to protect consumers.

Demonstrating value

Assessing value

Value is the relationship between the total price to the customer and the quality of service or benefit provided. Whether a product is delivering fair value will depend on a wide range of factors including the nature of the product, the type and quality of service provided (including by parties in the distribution chain), the overall costs of manufacture and distribution and the quality of any benefit. Firms should already be considering these factors, as set out under PROD4 and our Consumer Duty.

All the elements that make up the total price should be consistent with providing fair value based on the product or services provided to the customer. The risk price clearly relates to the most important benefit provided under the product to the customers – because the core purpose of an insurance product is to transfer risk. Other costs and benefits added to this may affect whether the product is providing fair value.

Firms should carefully consider the difference between the risk price and the total price paid by the customer. The larger the difference between risk price and total price, the more we would expect firms to show why the other costs provide fair value and fairly reflect the quality of the product or services provided.

In assessing fair value, we have seen a range of practices including:

• An example where a firm identified that the risk price was the key benefit to customers and reflected this by making sure the risk price was always the largest proportion of the price paid by the consumer, not the cost to distribute the insurance. In this case, the firm was considering all the elements that made up the total price to ensure the customer was receiving fair value.
   
• Examples where the risk price reflects only a small proportion of the total price, with distribution costs being the largest proportion without showing why this was consistent with fair value. The fair value assessments we saw failed to identify any unique or particular benefits customers would receive from paying such high distribution costs.

Differential outcomes

To deliver fair value, firms should already be testing the range of outcomes experienced by customers within the target market. For example, PROD 4.2.3A G notes that firms should take into account the nature and complexity of the firm’s existing or intended customer base, for example whether it includes or is likely to include;

• different types of customers with varying characteristics including in relation to their understanding of financial matters
• a significant number of vulnerable customers
• a significant number of customers of long tenure

The fair value assessment required under PROD 4 can help a firm identify unexpected consequences for different groups of consumers. These could be vulnerable consumers, or outliers such as groups with low claims ratios compared to the average for the same product. This type of analysis may suggest changes to the design of the product or the scope of its target market. During our General insurance and pure protection product governance thematic review we saw very little evidence of firms considering the nature and complexity of the products’ existing or intended customer base when considering fair value.

Contextual factors

We recognise that distribution and administration costs may form a higher proportion of the total price in some cases. For example, distribution and administration may have some fixed costs which make up a higher proportion of the total price for products with lower average premiums. But high distribution costs do not necessarily equate to greater benefits for customers. Firms should be careful not to pass on higher costs which provide no proportionate benefits.

Alternatively, if a product has higher average premiums, distribution and administration costs may appear low as a proportion of the total price, but firms must still demonstrate that these costs are consistent with providing fair value. Our work on multi-occupancy buildings insurance shows that total remuneration can increase significantly in nominal terms, even if it is decreasing as a percentage of the total price. 

Action for firms

We are concerned that a number of firms appear to be reporting data that could suggest a large difference between the risk price and the total price paid by the customer. This may present similar risks of harm as those we identified in the GAP insurance market. Firms must be fully compliant with our PROD 4 rules, which include the following:

• A firm must make sure that the product approval process identifies whether the product provides fair value to customers in the target market. This includes whether it will continue to do so for a reasonably foreseeable period, including following renewal (PROD 4.2.14A R).
   
• A firm must be able to clearly demonstrate how any product provides, and will provide for a reasonably foreseeable period, fair value (PROD 4.2.14C R (1)).
   
• Where the firm is unable to identify and clearly demonstrate that a product provides fair value, the firm must not market the product or permit the product to be distributed, or must have made sure appropriate changes have been made so that fair value will be provided (PROD 4.2.14C R (2)).
   
• The risk price and the total price paid by the customer should bear a reasonable relationship to the actual costs incurred by the firm or any other person involved in the distribution arrangement, the quality of any benefits, and the costs or quality of any services provided (PROD 4.2.14M E).
   
• A firm must, as far as reasonably possible, ensure the distribution arrangements for a non-investment insurance product avoid or minimise the risk of negatively impacting the fair value of the insurance product or package (PROD 4.2.14N R).

Our recent thematic review looking at firms’ implementation of PROD 4 details how firms have implemented these rules – and where they need to improve.

What the data shows

Many factors can contribute to the value of a general insurance product. It is important to consider all these factors together rather than single metrics in isolation. Some of these factors are included in our published data and some are not identifiable.

In previous publications we also published total claims costs as a proportion of total premiums paid at an aggregate product level. This allows some cross comparison between different products where other measures may be prone to product specific features and variations.

The proportion of premium paid in claims is one possible indicator of the relationship between the risk price and the total price. This may vary, for example, due to a significant change in written premium (eg a new product launch or significant pricing changes), or where the policy duration is more than 12 months.

At an aggregated product level, where a minimum of 5 firms reported data, and the data met our standards required for publication:

• Claims costs as a proportion of premium range from 10% for GAP insurance (Add-on) to 72% for healthcare cash plan (All).
   
• There has been modest improvement among some of the products with the lowest proportion of claims costs to premiums written. However, they remain low relative to other insurance products.
   
• Claims costs as a proportion of premium were 56% for motor insurance and 45% for home insurance (buildings and contents combined). This is a drop compared to 2022 (when they were 64% and 50% respectively). 
   
• We know from aggregate motor market data that motor insurance consistently made an underwriting loss throughout 2023 despite significant increases in premiums. So this may be a feature of our data picking up the significant premium increases when the policies were sold during 2023 – but not yet reflecting the claims that will be made on those policies (those claims may be settled during 2024 – or in later years). We continue to monitor this situation as consumers navigate cost-of-living pressures. We will challenge firms to make sure consumers get fair value from vital insurance cover.

This is the third dataset, and the second covering a full 12-month period. Users can download the data tables and filter the firm-specific information by product to explore the distribution of value measures across different firms.

Download GI value measures 2023 (XLSX)

We will collect data in February 2025 for January-December 2024. We aim to publish this in summer 2025.

Explaining the data and data quality

Some factors not identifiable in the data will influence the results. For example, business mix, age of the product, duration of policy, target market, and volume of business could create significant variation across products or firms. External factors such as climate patterns, inflation or societal issues could also have an impact.

Firms are responsible for submitting complete and accurate data. We have taken steps to challenge and correct material data quality issues. Ahead of the data collection, we also shared lessons on data quality from our first publication. It is possible that reporting inaccuracies or inconsistencies may still exist between firms. Issues we have identified within this data collection include:

• The potential for inconsistent interpretation of ‘add-on’ versus ‘standalone products’. We reminded firms of reporting requirements prior to submission and will continue to do so.
   
• Some firms may be misunderstanding reporting requirements and duplicating data submitted by other firms. We reminded firms of reporting standards prior to submission and have removed exact duplications.

Some movement to the data may be possible between publication cycles where firms identify and correct reporting errors outside of the normal reporting period. Care is needed if comparing this publication with historic data.

Why we are publishing

We committed to publish the GI value measures data in Policy Statement PS20/9.

The data provides firms, market commentators and organisations such as consumer groups with common indicators of value across a range of GI products. By publishing this information, we aim to create incentives for firms to compete on broader elements of product value rather than price alone, and to improve the value of the products and services they offer consumers.

The data is not designed to directly support consumers while they are making decisions about insurance products. The data is historic so may not reflect products and prices available today. If consumers have questions about the value of their insurance products, they should raise these with their insurer or broker directly. It is important that consumers understand what cover they are getting – and firms must make that clear to consumers during the sales journey.

What the data includes

The data includes firm-specific information on claims frequencies, claims acceptance rates, average claims pay-outs and claims complaints as a proportion of claims, for a wide range of retail GI products.

Firms are required to report for relevant products sold to consumers in the UK where total retail premiums (written) are above £400,000 in the reporting period, and where there are more than 3,000 policies in force during the reporting period. We are publishing data about individual firms where the same reporting threshold is met at a granular product level.

We have included additional contextual information at an aggregate product level to help readers interpret the data. For example, we have calculated the proportion of money raised in premiums that insurers paid out in claims. Our aggregated product level data only includes products where 5 or more firms submitted data, and where the data met our standards required for publication.

In Policy Statement PS20/9 we said that we would not require firms to report claims cost information for legal expenses insurance or vehicle breakdown insurance. The data does not include related metrics for these products.