Intermediaries advising on health and protection insurance must charge renewing customers the same fees as they do to new business clients, the Financial Conduct Authority (FCA) has announced.
The FCA announced the ban on charging higher fees to customers renewing cover compared to those taking out brand new policies as part of its overhaul of general insurance and pure protection pricing published today.
The regulator acknowledged that while most intermediaries received commission from insurers, some were charging fees as well and it feared these could be used to side-step equal pricing rules being introduced.
As a result, it extended the anti-avoidance rules it originally consulted on in September to include fees charged by advisers and insurers.
But it only applies to arrangement fees charged as part of the distribution process, including renewals, and it will not apply to contingent fees, such as those for mid-term adjustments.
While the relevant section only names intermediaries dealing with motor and home insurance, the regulator set out that the measures covered in the policy paper apply to all general insurance and pure protection contracts.
“We have not currently seen significant numbers of firms systematically increasing fees at renewal in the same way that premiums are being price walked; but, we are concerned that price walking through fees might become a more attractive option once the pricing remedy comes into force,” the FCA said.
“Both fees and commissions are, ultimately, paid by the customer. From the customer’s perspective, it makes little difference if a price increase is caused by a higher fee or by higher commission.
“We are, therefore, making a change to the anti-avoidance rules to make clear that firms will be breaching our rules where they charge a customer a higher fee at renewal than if they were a new customer.
“This will apply to both insurers and intermediaries, and to both current and closed books,” it added.
The regulator also reminded firms that existing rules required the clear disclosure in cash terms of all fees that customers may be required to pay.