ICOBS 6B.2 Setting renewal prices

1. 1A firm must not set a renewal price that is higher than the equivalent new business price.

2. Paragraph (1) applies at the point the renewal notice is prepared.

1In the case of a combined home insurance and motor insurance package, the renewal price for each of the following must be no higher than the equivalent new business price:

1. (1)

   the home insurance element;

2. (2)

   the motor insurance element; and

3. (3)

   the bundled price for the package.

1. (1)

   1In determining the equivalent new business price, a firm must assume that the existing customer has approached the firm through the same channel as they used when they first purchased their policy.

2. (2)

   Where the firm no longer accepts new business through the channel that the customer originally used to purchase the policy, or where the channel can no longer be identified, the firm must assume that the customer approached the firm through the channel most commonly used by new business customers of the firm.

3. (3)

   If the customer used more than one channel when they first purchased their policy, the firm must determine the equivalent new business price using the channel or combination of channels that was used to determine the price of the customer’s policy at new business.

1. (1)

   1A firm may calculate the equivalent new business price on the basis that the customer is using a different channel than they used when they first purchased their policy where:

   1. (a)

      the customer has agreed to take out a different product to the one they took out in the last insurance period;

   2. (b)

      the product the customer is taking out is most frequently purchased via a different channel to the one the customer used to take out their original product; and

   3. (c)

      it is in the customer’s best interests to take out the new product.

2. (2)

   Where a firm calculates the equivalent new business price according to (1), it must assume that the customer approached the firm using the channel that the product is most frequently purchased through.

1When calculating the equivalent new business price, a firm must include any cash or cash-equivalent incentives that it gives to new business customers and that the renewing customer would be eligible for if they were a new business customer.

1. (1)

   1ICOBS 6B.2.9R applies to any cash or cash-equivalent incentive that is wholly or partially funded by the firm.

2. (2)

   For the purposes of (1), it does not matter if the incentive is funded directly by the firm or if the firm provides funding to a third party contingent on that third party providing an incentive to the customer.

1Incentives that are not cash or cash-equivalent are excluded from the scope of these rules.

1A cash or cash-equivalent incentive is any incentive that can be readily expressed as having a monetary value including, but not limited to, the items listed in column 1 of the table at ICOBS 6B.2.14R.

1Non-cash incentives are any incentives that are not capable of being readily expressed as having a definite monetary value.

1The equivalent new business price must take account of any individually negotiated discounts the firm agrees with an equivalent new business customer for the product.

1. (1)

   1A firm must include in its determination of a customer’s equivalent new business price any risk information acquired during the term of the customer’s current policy that has the effect of either increasing or decreasing the equivalent new business price.

2. (2)

   Paragraph (1) includes risk information that the firm would not normally have in relation to new business customers, such as telematics data or fraud risk indicators.

1Where a firm increases the price of a policy sold on a subscription basis, it must apply the rules in this chapter on setting a renewal price.

1A firm that sells policies on a subscription basis must review the pricing of their subscription policies at least annually.

1The annual review must assess whether the price of the policy sold on a subscription basis is no higher than the equivalent new business price.

1Where a customer’s policy is in a closed book, the firm must determine the customer’s equivalent new business price according to the following rules.

1The firm must identify from the home insurance and motor insurance products that it currently actively markets or distributes, whether it has a home insurance or motor insurance product that is a close matched product.

1Where the firm no longer actively markets or distributes any home insurance or motor insurance product which is a close matched product but it is part of a group which does actively market or distribute home insurance or motor insurance products, it must identify whether the firm’s group actively markets or distributes a close matched product.

1Where there is more than one product which is a close matched product, the firm must select:

1. (1)

   the close matched product which is the most similar to the customer’s existing policy; or

2. (2)

   where it is not possible to identify the most similar close matched product, the close matched product which will lead to the most favourable pricing outcome for customers who hold a policy in the closed book.

1Where a close matched product is identified or selected, the equivalent new business price for a customer in the relevant book is the price set out in (1), taking account of the permitted adjustments set out in (2) below.

1. (1)

   The equivalent new business price for the close matched product.

2. (2)

   The permitted adjustments are those which fairly and proportionately reflect the difference in costs for the firm arising from differences between the cover or benefits (including any compulsory excess) or other costs of providing services or benefits under the contract (such as additional telephone support) provided by the policies in the closed book and the close matched product.

1In calculating the equivalent new business price for a close matched product, a firm must assume that the customer approached the firm using the channel most commonly used by new business customers of the close matched product.

1A firm must set the renewal price in accordance with ICOBS 6B.2.39R if either (1) or (2) apply:

1. (1)

   the firm is unable to identify a product which is a close matched product; or

2. (2)

   the firm is unable to determine an equivalent new business price because the firm would not offer a policy to a new business customer of the same risk profile as the existing customer.

1A firm must assess whether any of its home insurance or motor insurance products are in closed books:

1. (1)

   at least annually; and

2. (2)

   whenever the firm makes a material change to the distribution or marketing of the product that could change the book from being an open book to a closed book.

1An insurance intermediary that is involved in the setting of any portion of the renewal price of the policy must ensure that the portion they set or their contribution to that portion is set at a level that is no higher than it would be set for a new business customer.

1An insurance intermediary that carries out insurance distribution activities at renewal and which either:2

1. (1)

   forgoes commission in whole or in part when selling to new business customers; or

2. (2)

   offers a cash or cash-equivalent incentive (within the meaning of ICOBS 6B.2.12R) to new business customers,

must, to the extent that a customer renewing a policy would be eligible to benefit from the commission forgone or the cash or cash-equivalent incentive if they were a new business customer, include that forgone commission or cash or cash-equivalent incentive when:

1. (1) determining the equivalent new business price at renewal; and

2. (2) applying ICOBS 6B.2.9R to ICOBS 6B.2.15G.

1A firm that has responsibility for setting the price of an additional product that is available to a customer in connection with a home insurance or motor insurance policy must ensure that the price of the additional product at renewal is no higher than the price at which the additional product would be offered to the customer if they were a new business customer.

1Where a firm no longer offers to new business customers an additional product which is available to a customer in connection with the renewal of a home insurance or motor insurance policy, the price for that additional product must be set as follows:

1. (1)

   where the additional product is a policy, the firm must:

   1. (a)

      apply the rules for closed books in ICOBS 6B.2.25R to ICOBS 6B.2.33G (and references in these rules to home insurance or motor insurance should be read as ‘additional product’); or

   2. (b)

      if the additional product has no close matched product, apply ICOBS 6B.2.39R;

2. (2)

   where the additional product is not a policy, the firm must apply ICOBS 6B.2.39R.

1A firm must ensure that it does not systematically discriminate against customers based on their tenure, when determining:

1. (1)

   an equivalent new business price;

2. (2)

   the renewal price for customers in closed books where a firm is unable to identify a close matched product;

3. (3)

   the price for any additional products offered to the customer at renewal of a policy; and

4. (4)

   the level of any remuneration earned by the firm, including in particular any fees charged to a customer, at renewal of a policy.

1A firm must not make arrangements that are designed to enable it to treat existing customers as new business customers unless:

1. (1)

   the firm can demonstrate that the proposed arrangements are in the best interests of the customers that will be treated as new business customers under the arrangements; and

2. (2)

   the price of the products distributed to these customers does not adversely impact on the product offering fair value according to PROD 4.2.14AR and, where relevant, PROD 4.2.14BR.

1It is not a contravention of ICOBS 6B.2.39R or ICOBS 2.5.-1R for a firm to offer a customer a renewal price that is lower than the equivalent new business price based on any factor, including the customer’s tenure.

1A firm must notify the FCA if it becomes aware that any other firm in the distribution chain is not or may not be complying with the rules in this chapter.

1When communicating a renewal price to customers, or when contacted by customers to discuss a renewal price, a firm must not systematically discriminate against customers based on tenure.

1When communicating a price for any additional product at renewal of the policy, or when contacted by customers to discuss the prices of additional products at renewal of their policy, a firm must not systematically discriminate against customers based on tenure.

1A firm must make and retain written records of how it continues to satisfy itself that it does not systematically discriminate against customers based on tenure in contravention of ICOBS 6B.2.39R including details of:

1. (1)

   the assessment undertaken by the firm to evaluate whether the equivalent new business price for3 customers of longer tenure systematically exceeds that for new business customers;

2. (2)

   the controls put in place by the firm to ensure that any pricing model it uses to generate its equivalent new business prices, or the renewal prices for customers in closed books where a firm is unable to identify a close matched product, does not generate prices which are systematically higher the longer a customer’s tenure is;

3. (3)

   the evidence gathered and the assessment undertaken by the firm to evaluate whether its renewal prices or prices for additional products at renewal offer fair value to customers of longer tenure;

4. (4)

   the assessment undertaken by the firm to evaluate whether the fees it charges to customers of longer tenure systematically exceed those charged to new business customers; and

5. (5)

   any appropriate independent oversight of the assessments and controls in (1), (2), (3) and (4).

1A firm must make and retain written records of how it satisfies itself that any arrangements it makes to enable it to treat existing customers as new business customers are consistent with ICOBS 6B.2.39R, including details of:

1. (1)

   the assessment it has undertaken to assure itself that the customer best interests rule in ICOBS 2.5.-1R is met; and

2. (2)

   the assessment it has undertaken of the likely effect of the arrangements on the price customers will pay for their product after the arrangements have taken effect as compared to the price customers would pay if the arrangements did not take effect.

1A firm must also make and retain written records of its consideration of the extent to which material decisions which it takes in relation to its compliance with the rules in this chapter are consistent with:

1. (1)

   the objectives of these rules as set out in ICOBS 6B.1.4G3;

2. (2)

   the requirement not to discriminate against customers based on tenure in ICOBS 6B.2.39R, ICOBS 6B.2.47R and ICOBS 6B.2.48R; and

3. (3)

   the requirements in ICOBS 6B.2.42R around making arrangements to treat existing customers as new business customers.

1The records in ICOBS 6B.2.51R and3 ICOBS 6B.2.52R must set out clearly:

1. (1)

   the basis on which the firm is complying with the rules in this chapter;

2. (2)

   how the firm has resolved any areas of discretion, ambiguity or potential uncertainty in its determination that the pricing of its home insurance and motor insurance renewal business, including additional products available to customers in connection with this business, is in compliance with the rules in this chapter; and

3. (3)

   appropriate expert input and advice on which the firm relies in satisfying itself as to its compliance with the rules in this chapter.

1The records compiled by the firm in accordance with ICOBS 6B.2.51R to ICOBS 6B.2.53R must be provided as soon as reasonably practicable after the record is prepared or updated to the person responsible for the attestation in ICOBS 6B.2.60R, and to the FCA on request.

1Every firm subject to the rules in this chapter must provide the attestation set out at (1) for the reporting period set out in (2) at the time set out in (3) by a person in (4) below.

1. (1)

   The attestation is that the firm:

   1. (a)

      is and has been complying with the rules in this chapter throughout the reporting period; and

   2. (b)

      is satisfied that the pricing of its home insurance and motor insurance renewal business and related sales practices are consistent with the objectives of the rules as set out in ICOBS 6B.1.4G and does not discriminate against customers of longer tenure as set out in ICOBS 6B.2.39R, ICOBS 6B.2.47R and ICOBS 6B.2.48R.

2. (2)

   The reporting period is the 12-month period beginning 1 January and ending 31 December.

3. (3)

   The attestation must be provided annually, on or before 31 March in the year following the end of the reporting period.

4. (4)

   The attestation must be provided by:

   1. (a)

      a single person, who holds a senior management function in the firm; or

   2. (b)

      where a firm is not an SMCR firm, by a director of the firm.

1The attestation must be submitted online through the appropriate systems accessible from the FCA’s website.

1The attestation will not be considered as submitted to the FCA unless it has been accepted by the relevant FCA system.