SUBMISSION: Our response to the FCA Access to Insurance Call for Input

September 18, 2017

The Financial Inclusion Commission (FIC) is an independent body of experts and parliamentarians (cross party) which aims to make financial inclusion a national priority. Our ground-breaking report, launched in March 2015, proposed the measures most urgently needed to extend access to financial services to the excluded.

The Commissions welcomes the FCA’s initiative in this area as access to travel insurance for people with illnesses, especially those who have, or have had cancer, was one of the most marked areas of difficulty which emerged in our report.

The FIC wants to see a financially inclusive United Kingdom in which everyone enjoys decent financial health. Financial inclusion has the potential to play a pivotal role in delivering the Government’s objective of building a country that works for everyone.  In our view, that should include a financial system that works for everyone.

Part of this involves every adult having access to the right insurance cover for his or her needs at a fair price. Evidence to the FIC indicates that insurance is seen as irrelevant or unaffordable for many with some groups paying disproportionately high premiums.

In our 2015 report Financial Inclusion: Improving the Financial Health of the Nation, among our key recommendations, those which are most relevant to this study are:

1. The FCA should ensure that risk profiles, premiums and refusals of cover in the personal insurance market are based on accurate information.

2. HM Treasury to lead a debate on suitable and affordable protection for consumers unable to obtain personal insurance through the market.


Answers to Consultation Questions

Q10: What do you believe are the main barriers for consumers trying to access the travel insurance market?

We found that many people with a cancer diagnosis are not able to access appropriate insurance products, notably travel and life insurance, even when they are confirmed as ‘all clear’.

It is reasonable that people who present a higher risk pay a higher premium but there is a need to ensure that these costs are proportionate to the risk.

Barriers include the following:

  • Insurance terms and conditions are not readily absorbed by, or easily comprehended, by many people. If coverage for travel insurance is limited by the application of a ‘pre-existing conditions’ exclusion, this should be made crystal clear to the applicant.
  • Transparency in terms of how premiums are calculated can lead to a lack of trust and understanding for consumers.
  • Potentially a lack of products available for people affected by cancer. There is a need for greater knowledge and understanding here.
  • Lack of published – and adhered to – industry good practice in dealing with people affected by cancer.
  • Age limitations.

More evidence is needed on how risk-pricing operates in the personal insurance market (e.g. for travel, car, home contents, and life assurance products) for groups that are thought to be underserved. The Commission recommends that the FCA ensure that risk profiles, premiums and exclusions from cover are based on accurate information. It must make sure that people are being assessed for risk fairly, and prices reflect that level of risk. Insurers should be required to justify to the FCA that their decisions are based on risk-based pricing and contain no element of discrimination.

Linked to the above, could there be benefit in firms voluntarily providing benchmarking data similar to the benchmark data already published by the Association of British Insurers relating to age as a factor in motor and travel insurance.

A lack of a strategic approach to addressing insurance issues and wider financial inclusion problems in the UK. The market can only go so far and we recommend the FCA fully investigates how far this is – greater understanding and clarity is needed. Once this is understood it is the responsibility of government to address social policy issues, for example, by creating solutions such as Flood Re, which addresses problems some consumers have experienced accessing flood insurance.

Q12: Please provide details of what your understanding is of the role consumer organisations/charities play when consumers who have, or have had, cancer are accessing the travel insurance market.

The Commission would also like to see insurance companies and trade bodies work in partnership with charities and civil society organisations through data sharing to ensure risk profiling of all consumers is based upon accurate information. In addition, where a person is either refused insurance or offered it at a prohibitively high cost, insurers should direct him or her to other more specialised insurers or an effective brokerage service.

Q13. Are you a member of any signposting services, for example, the BIBA ‘find a broker’ service? If yes have you identified and advantages or drawbacks with these schemes? Please describe them.

The FIC is not a member of a signposting service, however, we recommend that existing signposting systems are rigorously evaluated in terms of customer journey, experience and outcomes before they are relied upon as a way to address access problems for consumers.

Q18. Do any regulatory barriers exist that prevent firms developing their offerings for consumers who have, or have had, cancer?

Although not a conduct risk regulatory matter, the enhanced rate of insurance premium tax charged on travel insurance policies forms a barrier to the availability of travel insurance to people who have, or have had, cancer.  The rate of insurance premium tax on travel policies is 20% rather than the standard 12%.  For somebody whose premiums may already be higher (if there is an enhancement to risk which renders this appropriate) the enhanced rate compounds the difficulty of obtaining affordable cover.  There are already exemptions to insurance premium tax, one of which relates specifically to motor insurance for vehicles for use by disabled persons (see ‘Notice IPT1: Insurance Premium Tax on the UKGov website).

Might such an exemption be feasible for travel insurance for people who have, or have had cancer, where premiums above ‘standard rates’ are charged? Or could the rate of tax be levied on the ‘standard premium’ rather than on the premium including the loading?

Is there any regulatory oversight of the value for money provided by insurers for this type of cover, by reference, for example, to the proportion of premiums (net of tax) returned as claims? If not, should there be? Has there been a comparison with similar products in countries other than the UK? What is the role and effect of comparison websites in this product area? 

Q19: What more can be done by the FCA to better support innovation in the insurance industry?

As insurance companies become better able to segment customers, consumers will group or be grouped into similar risk bands. While some groups will see lower premiums, the implication of this is that even when insurance is priced fairly, and without discrimination, some people will be priced out of or excluded from the insurance market altogether.

The Commission believes that this leaves the government and insurance sector facing a number of important questions. For example, what is the purpose of insurance if not to pool risk? Is it inevitable that people have to pay ten, twenty or even fifty times more for a service, because of circumstances over which they have no or limited control? What is the alternative for people who are priced out?

There are no clear answers on how to tackle these difficult questions. There could be a role for social insurance or subsidy, a wider pooling of risk or other form of cross-subsidy, regulation of price, or regulation of the elements that can be factored into a risk score. An honest debate should be had focusing on how suitable and affordable protection can be provided for those groups that can no longer afford, or are excluded from insurance. The debate should include all stakeholders, including government, the regulator, insurance companies, trade bodies, civil society and the general public.