Based on a behavioural experiment by Oxera into how prompts can encourage consumers to switch providers, under plans announced today by the Financial Conduct Authority (FCA) annuity providers will be required to tell their customers how much they could gain from shopping around before they purchase an annuity.
The FCA had previously found that 60% of customers were not switching providers when they bought an annuity, and that up to 80% of these customers could get a better deal on the open market.
In order to address this, the FCA’s Retirement Income Market Study recommended that an ‘annuity comparator’ be established in order to encourage shopping around. The FCA is proposing that this comparator takes the form of an information prompt before an annuity is purchased.
Under the FCA’s proposals, firms will be required to deliver information in a personalised form in a format set out by the FCA. This prompt will have to show the difference between the provider’s own quote and the highest quote available to the consumer from all other providers on the open market. There will also be a prompt to help the customer access the best quote.
This proposal from the FCA is based on a behavioural experiment conducted by Oxera. In June 2016, Oxera and the Nuffield Centre for Experimental Social Sciences (CESS) published the results of an experiment testing the effectiveness of different prompts in encouraging consumers to shop around. The study, commissioned by the FCA, found that personalised messages were the most effective in stimulating product comparisons, while generic messaging appealing to social norms also had a significant impact.
To view more information on Oxera’s behavioural experiment, click here.
To view the full press release from the FCA click here.