SHOULD PRODUCT RATINGS BE USED AS AN ALTERNATIVE TO CLAIMS RATIOS?

Following the Financial Conduct Authority’s (FCA) recent announcements in relation to the publication of value information on add-on products to help consumers make informed purchasing decisions, Richard Finan, Director of Arc Legal Assistance (Arc Legal), has been discussing possible alternatives to the publishing of claims ratios for add-on products.

He outlined Arc Legal’s support for a product ratings approach, however suggested that any rating should be collated by an independent organisation, and with carefully considered criteria on which the product would be measured.

Richard provided an example of a Home Legal Expenses Insurance (LEI) product, where the criteria for a rating might include aspects such as jury service cover, but exclude employment disputes cover. He pointed out that employment disputes cover typically sees significantly more usage and the rating therefore, would not reflect this. He stressed that an organisation providing any rating should enter into dialogue with LEI providers to ensure the criteria being used was relevant.

The FCA has subsequently issued a discussion paper in which it has set out three potential options for market feedback. The Regulator has said that it still believes publishing value information will incentivise firms to increase competition, while highlighting products that may not offer good value. The three options put forward are claims ratio as a stand-alone value measure; a package of claims frequencies, claims acceptance rates and average claims pay-outs; and claims ratios and claims acceptance rates. Market feedback on these and thoughts on alternative options to increase product transparency and quality have been requested by 24th September 2015.

Richard was speaking to Post Magazine. The full article can be found at www.postonline.co.uk.

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