Health insurers and cash plan providers have been excluded from Financial Conduct Authority (FCA) rules surrounding the automatic annual renewal of general insurance contracts, the regulator has confirmed.
However, they will be required to offer renewing customers products at prices equivalent to or better than those for new customers.
And they must be subject to a fair value assessment to ensure customers are not being over charged or exploited.
The rules were confirmed as part of a package of remedies from the FCA published in a policy statement today, to improve competition and protect insurance customers from loyalty penalties.
They formed the final rules from the regulator’s General insurance pricing practices market study and followed on from a consultation published in September.
Cancelling auto-renewal
One of the key proposals from the FCA was to prevent barriers to consumers who want to exit their auto-renewal arrangements and make it easier to do so.
However, the FCA noted it had received several responses warning that applying the auto-renewal measures to these products could lead to consumer harm.
For example, if consumers unintentionally opt out of auto-renewal during a period of treatment, this could result in the treatment terminating early and there was also a risk of losing cover for pre-existing conditions if they accidentally fail to renew their policy.
Some respondents said that requirements for firms to enhance communication about the impact of cancelling auto-renewal may not be enough to counteract these risks.
These arguments were noted but cash plan providers who added that the benefits enjoyed by consumers relied on policies auto-renewing, as this gave consumers continued access to healthcare while supporting steady prices.
‘Lose cover for pre-existing conditions’
As a result, the FCA acknowledged this and said it would carry out further work before deciding whether to apply the measures to these products and pet insurance in the future.
“We recognise that there are potentially serious consequences if consumers don’t renew these types of cover,” the regulator said.
“Such policies cannot always be reinstated on the same terms, which could mean consumers lose cover for pre-existing conditions.
“We also recognise that the nature of healthcare cash plans and the benefits available to consumers depend on the policies auto-renewing.
“Considering these factors, we will not apply our auto-renewal rules to private health, medical insurance and pet insurance at this time,” it added.
January introduction
Insurers must enact the rules by 1 January, although the FCA has included transitional provision for pricing and auto-renewal disclosure to allow firms until 17 January to implement processes, providing they compensate any customers who suffer a loss resulting from the failure to have processes in place on 1 January.
For the pricing remedy, the provision requires firms to make good any pricing differences for consumers who received higher quotations than they would have done under the new rules.
For disclosures required under the new auto-renewal rules, firms must contact customers to provide the required information where this has not been done on time and this must be done by the end of February 2022.
“We are mindful of the challenges posed by the implementation of these remedies and recognise that firms would ideally have wanted 12 months to implement them,” the FCA said.
“However, we believe it is essential that the reforms are implemented as soon as practicable to address the harm that price walking causes customers.”