“No alarms and no surprises” could be the subtitle to the Financial Conduct Authority’s insurance price gouging review. The watchdog wants to stop loyal motor and home insurance customers getting a nasty shock come renewal time. And its review contained little unexpected unpleasantness for the industry either.
Almost all the proposals for reform were contained in its interim update a year ago. Charging repeat customers more than new ones when the risk of insuring them has not changed — aka price walking — will have to end. Some of the measures most troublesome to the industry, such as an end to auto-renewals, have been dropped.
Investors took fright nonetheless. Shares in insurers Direct Line, Sabre, RSA and Admiral all fell between 2 and 6 per cent, making them some of the worst performers in the FTSE 350.
The proposed ban on loyalty penalties, however predictable, will be significant for the industry. In the past two years, just about every regulator in town has taken aim at them, from broadband to banking. High margins on policies sold to lazy customers help to offset loss-leading quotes to capture new ones. That business model will have to adapt.
So far the industry has been almost as lethargic about changing its business model as customers are about switching. The Association for British Insurers says companies have taken action, with £641m saved for renewing customers through “pricing interventions” in the 20 months since it launched an industry initiative. The FCA reckons price-walking is an endemic part of industry practice, though. Aviva and Saga are among the few to have launched products specifically targeting the loyalty penalty.
Insurers could put up prices across the board. But competition and price comparison sites make that tricky. Or they could charge more for add-ons and financing. Equally likely is that insurers will find other ways to reassess risk to justify putting up prices on policyholders. And they don’t have to explain their sums to anybody but the regulator.
Unlike policyholders, insurers have access to increasingly granular data they can use to tot up risk. That gives them more cover to raise premiums if they can get away with it. There will still be rip-offs. So long as transparency is limited and opacity lives on, insurers don’t have too much cause for alarm.
Events do for Beazley
Asked what might blow plans off course, former PM Harold Macmillan replied laconically “Events dear boy, events”. Or so it is said.
Events have certainly blown insurer Beazley’s expectations off course. Annual conventions, corporate get-togethers and industry shindigs have not just been put on hold because of the pandemic. Conferences are not just being delayed. They are being cancelled.
And Beazley is having to pay out. It expects claims to be $340m or more, it said on Tuesday. That is double the $170m estimate that the insurer put out in April. And most of the rise is because of losses on mothballed assemblies.
Beazley now thinks the disruption to the conference calendar in the UK and US, which make up a big part of the group’s book of business, will continue well into next year. There is unlikely to be a return to any kind of normality until the second half of 2021, it says.
It was an echo of comments made by Informa a day ago as the world’s biggest events and conference organiser reported interim results. The group said it would postpone physical gatherings until at least mid-spring next year.
Five months ago, both Informa and Beazley talked of events resuming this autumn. That may be happening in China where the economy is forecast to expand this year. But the outlook in Europe and the UK is worsening. On Tuesday, the UK government under Boris Johnson issued renewed guidance asking Brits to work from home where they can. It also further restricted mass gatherings and paused trials to widen public access to sporting events, exhibitions and conference centres.
Investors knocked 11 per cent off Beazley’s shares on Tuesday as a punishment for what they now worry was short-sightedness. That is despite the forethought of both groups in raising money this spring to fortify their balance sheets. Beazley raised $300m at 329p a share in May, a month after Informa issued shares at 400p to raise about £1bn.
The cash call should see Beazley through to next year while it raises rates and expands margins. Informa has shored up its balance sheet. But the stock market is not in a forgiving mood. Informa’s shares are a long way behind the price of its fundraising. Investors were as optimistic as Beazley in May but have since wiped as much off the group’s market capitalisation as it raised. That seems harsh to analysts such as Ming Zhu of Panmure Gordon, amid a pandemic that is blowing every plan off course. That’s events for you.
Get alerts on UK insurance industry when a new story is published