Here’s an intriguing idea the Financial Conduct Authority probably won’t adopt: get the entire population of the UK to renew, or switch, its car and home insurance policies on the same day every year.
Absurdly impractical? Almost certainly, but the proposal has been included for consideration in the FCA’s study of how to shake up the general insurance market and one can understand why. As the regulator rightly says, there are “a number of areas of potential consumer harm”. One is insurers’ common practice of whacking up renewal quotes in the hope that bored or unwary punters will tick the box without noticing they’re being gouged.
In the regulatory jargon, this is “inertia pricing”. The current remedy for policyholders is to get on the phone and protest, which usually produces a lower quote. The FCA would not be alone in thinking the carry-on is farcical. Its formal worry is that vulnerable customers, or even those who fondly imagine an insurer would reward loyalty as a matter of course, are losing out. Thus the radical idea of holding a mass annual purchase of insurance to promote greater transparency and competition.
The FCA says it’s how Hungary arranged its car insurance market until 2014. Companies could only change their prices in one week of the year and did so with a marketing blitz that concentrated minds. Hungarian regulators report that insurance prices went up after the statutory campaigning period was abandoned.
One strongly suspects the FCA won’t dare to be so radical. Even its discussion document worries that the most inert consumers, not to mention those who are on holiday or ill, wouldn’t be reached anyway. That’s before insurers pitch their inevitable grumbles about administrative burdens and the need to manage risks via flexible pricing. It’s more likely the regulator will opt for a relative price cap or various “nudge” strategies, or do nothing.
Yet there’s a germ of a good idea in the mass-renewal approach. Insurers have punished loyalty for too long. A one-day or one-week window is clearly a non-starter, but an intense auction for business sounds an excellent way to deliver lower premiums and clearer pricing. The FCA should be imaginative and see if the model can be adapted.
Retail property has a long way to fall
Sales in the shops down heavily, online sales up strongly. Next’s trading trends are not new, but the contrast is remarkable. Its stores recorded an 8% decline in sales for the third quarter while the online operation was 12.7% higher.
For Next itself, it’s not a serious worry because its online business is already large. The latest numbers produced an overall 2% improvement in full-price sales, which is respectable in today’s climate for clothing retailers. More to the point, the traditional shops remain profitable and Next regards them as complimentary to the online offer. Many customers prefer to return an online order to a shop, for example.
But the trends will continue to look horrible from the point of view of retail landlords. Every tenant with any flexibility is copying Next’s approach of being brutal when leases come up for renegotiation. “We must ensure that we take maximum advantage of the many lease expiries we will experience over the next few years,” said Next’s chief executive, Simon Wolfson, in the previous update. For the latest batch of 33 renewals, Next’s rental costs fell 28%.
The country’s second largest clothing retailer will have more negotiating clout than most, but the statistic shows how power now lies with tenants. Retail-heavy property companies, attempting to whistle cheerfully, tend to argue that the long list of retail failures this year has only chipped a percentage point or two off their rent rolls. But it’s the solvent retailers that are their bigger long-term worry. The adjustment in the property market has a long way to run.
Help to buy – the great executive pay subsidy
Greg Fitzgerald, the boss of Bovis Homes, put it eloquently a few weeks ago. If help to buy, the government’s support scheme for homebuyers, were to be extended, ministers would insist on new rules “to stop you bastard chief executives earning all this money from government subsidies”.
In other words, surely even dozy ministers wouldn’t risk creating another Jeff Fairburn, the man from Persimmon who was lost for words recently when asked to explain his £75m bonus.
But, no, help to buy was extended in Monday’s budget to 2023, but the government did not request, let alone impose, a cap on executive bonuses. The personal prizes for housebuilders probably won’t be as lucrative in help to buy’s final years, but you know who to blame if they are.
