Sheldon Mills, the FCA’s Executive Director for Consumers and Competition, gave a keynote speech at the BIBA conference last Wednesday. He touched on the new consumer duty regulations being introduced. While I wasn’t attending, it’s clear from reports that he was asked in a subsequent Q&A about pricing and the consumer duty. This was how his response was reported…
“The new consumer duty is not intended to be a price regulation mechanism… . We do not want to be a price regulator.”
This view is worth exploring a little, for some of the nuances are of significance to insurers. Let’s start with ‘we do not want to be a price regulator’. That’s not the same as ‘we do not regulate price’. While the FCA may not see itself as a price regulator, parts of the market are certainly experiencing pricing being regulated. And that experience is of course down to the price walking regulations issued by the FCA.
Let’s bring in the new consumer duty. It may not have been intended as a ‘price regulation mechanism’, but it is very likely to result in prices being influenced by regulation. The most obvious way relates to value and commissions. Some broker arrangements in both personal and commercial business involve eye wateringly high commission levels. Sure, there are service level differences, but not always. Even the Government has its eye on commissions for multi-occupancy buildings policies.
The problem for insurers when this sort of narrative emerges is that of trust. What side of that narrative should they trust, when the regulator says one thing and does another? What surprises might be in store for the market, when the talk and the walk feel quite different?
Proof of the Pudding
It is possible of course that the difference between being a price regulator and regulating price boils down to what economists mean exactly by being a price regulator. As if there’s more to being a price regulator than regulating price. That might be the case, but often the proof of a pudding is down to what it tastes like, rather than what its ingredients are. People, be they consumers or brokers, tend to be guided more by what they experience, rather than what they’re told.
Is there some aspect of a reluctant regulator here? Something along the lines of ‘we didn’t really want to regulate price, but those super-complainers made us do so’. Based upon the evidence, I think there’s more than a little of that in the culture at the FCA.
The FCA is a large organisation with a lot of power. It is essential that such power is based upon a clear narrative that recognises and takes responsibility for the actions it takes. After all, that’s what accountability means.