Consumer Duty and pricing models: how to evidence fair value

The FCA's Consumer Duty raised the standard UK firms must meet for retail customers. For insurers and MGAs, one of its four outcomes, price and value, applies directly to pricing. Firms need to show that the price a customer pays is reasonable for the benefits they receive.

Showing this depends on evidence. A pricing team that can explain how each price was set, show that the model behaves as intended and trace any individual quote is in a much stronger position than one relying on spreadsheets and memory.

The rules that apply to pricing

Two sets of FCA requirements shape how general insurance pricing is governed in the UK.

Consumer Duty. The Duty requires firms to act to deliver good outcomes for retail customers. It sets out four outcomes: products and services, price and value, consumer understanding and consumer support. Under the price and value outcome, firms must assess whether their products provide fair value, considering the price paid against the benefits, and act where they do not. Manufacturers and distributors each have responsibilities, so MGAs and the insurers they work with both need to play their part.

General insurance pricing practices. Rules that came into force in January 2022 stopped firms charging renewing home and motor insurance customers more than they would charge an equivalent new customer through the same channel. The rules also brought in product governance requirements, including regular fair value assessments, and reporting requirements so firms can show they comply.

Taken together, these rules mean a firm needs to know what its model charges, why, and whether that result is fair.

Evidence a pricing team should keep

Fair value is assessed at product level, but it relies on evidence from the pricing process. The following records make that assessment easier and more credible:

• The model as it was. A copy of every version of the pricing model, with the date it went live and the date it was replaced.
• What changed and why. For every change, a description of what moved, the reason for it and who approved it.
• Proof the model works as intended. A suite of test cases with expected results, run on every version, showing the model prices correctly.
• Renewal and new business equivalence. Tests or analysis showing that a renewing customer is not charged more than an equivalent new customer through the same channel, for products covered by the renewal rules.
• Individual quote traces. For any quote, a record of the inputs, the factors applied and the result, so complaints and queries can be answered precisely.
• Outcome monitoring. Regular review of prices and outcomes across customer groups, so any unexpected pattern is found and addressed.

How versioning, tests and traces help

Each of these records maps onto a feature a pricing system can provide directly, rather than one assembled by hand after the fact.

Versioning. When every change creates a new version, and every quote records the version that priced it, the question "what were we charging in March, and why?" has a clear answer.

Tests. A test suite turns "we checked a few quotes" into a documented check that runs every time. For the renewal rules, tests can compare a renewal quote with the equivalent new business quote and fail if the renewal price is higher. Our article on testing pricing models covers how to build these suites.

Traces. A full trace for each quote shows exactly which inputs, lookups and formulas produced the price. That helps complaints teams, internal audit and anyone preparing evidence for the FCA.

Approvals. A record of who approved each version and when supports the governance side of the Duty and of product governance rules.

Common gaps

Firms that struggle to evidence fair value often share the same problems:

• Pricing logic held in spreadsheets with no reliable record of past versions.
• Rate changes made directly in production without a formal approval step.
• No systematic way to check renewal pricing against new business pricing.
• Quote records that store the result but not how it was reached.
• Several copies of the pricing logic across different channels, which can drift apart.

Each of these can be fixed with a single, versioned pricing model that serves every channel and keeps its own evidence.

How Ptally supports this

Ptally models are readable JSON with tests stored alongside them. Every version is recorded, and each one moves through draft, approval and publishing, with every status change logged against the person who made it and the time. Every quote can return a debug trace showing each input, lookup, formula and rule, and one model serves every channel. You can see a full worked example on our model building page.

Getting started

If you want pricing that produces its own fair value evidence, send us your rating guide or current model. There is no implementation fee and nothing to pay upfront. Talk to our team.

This article is general information and is not legal advice. Check the FCA's current rules and guidance for your own products.