The True Cost
Price & Value
The FCA found that most insurance firms were not aggregating the total cost to customer across the full distribution chain. They assessed value by looking at individual components — the premium, or the claims ratio — without accounting for the layers of intermediary cost that sit between the risk price and the amount the customer actually pays.
The structural move is to make total cost to customer visible as a single number — and then use that number, not its components, as the basis for value assessment:
Cost assemblyIdentify every charge between risk price and customer payment across each distribution channel. This is a data integration challenge, not a calculation: it requires contractual rights to the information, systems that can aggregate it, and a governance process that holds the assembly together over time
Value frameworkDefine what fair value means relative to total cost, not just premium. Claims ratios are necessary but not sufficient — a product with a high claims ratio can still be poor value if the coverage does not match the customer need. The framework must articulate the benefit the customer receives relative to what they actually pay
Erosion triggersValue is not static. External factors (market prices, interest rates, regulatory changes) and internal factors (distribution cost creep, benefit reduction) can turn a fair-value product into a poor-value one. The pattern requires defined thresholds that trigger review when the total-cost-to-benefit ratio shifts
Fair value assessments use total cost to customer — including all distribution remuneration — as their starting point
Each distribution channel has a separate value assessment reflecting its actual cost structure
Defined triggers exist for value review, with evidence they have been activated and acted upon
The firm can show the FCA what the customer pays in total and articulate why that total represents fair value
A motor insurer mapped total cost to customer across its three distribution channels and found a 35% variance. Direct customers paid close to risk price plus a modest margin. Comparison site customers paid 18% more after platform fees and introducer commissions. A particular affinity scheme added a further 12% in scheme management fees that had never appeared in any value assessment. The product’s claims ratio looked healthy in aggregate; segmented by channel, the affinity scheme could not pass a fair value test.
After the FCA suspended GAP insurance sales market-wide, one insurer rebuilt its value framework starting from total cost to customer. It discovered that distribution costs consumed 70% of the premium on certain channels — leaving a product that could not deliver meaningful coverage at any plausible claims frequency. The product was withdrawn from those channels entirely rather than adjusted.
- Common failure modes
The failure mode the FCA explicitly identified is treating value assessment as a tick-box exercise — completing the template without genuinely interrogating whether the customer gets a good deal. A second is relying on aggregate data that masks poor outcomes for specific segments or channels. A third is assessing value at launch and not revisiting it — the GAP case demonstrated how quickly external factors can turn a viable product into a poor-value one.