Finance Editor, Kael Tripton Ltd - LBS MBA - Verified against FCA Handbook: 14 June 2026
Quick answer
Consumer Duty Outcome 2 requires every FCA-authorised insurer to prove their premium represents fair value -- that the price is proportionate to the benefit. Add-ons and bundled products are specifically in scope. You can challenge your insurer if their pricing does not appear proportionate and escalate to the FOS.
What Is Fair Value in Insurance Under FCA Consumer Duty?
Direct answer
Does my home insurer have to prove fair value under FCA rules?
Yes. Under Consumer Duty Outcome 2 (PS22/9, handbook.fca.org.uk/handbook/PRIN/2A/), every FCA-authorised insurer must conduct a formal fair value assessment for each product as of 31 July 2023. The price must be proportionate to the benefit customers receive. You can request confirmation of this assessment and challenge the insurer if their pricing does not demonstrate fair value.
FCA Handbook - PRIN 2A.4.1 - Verbatim Rule Text Source: handbook.fca.org.uk
A firm must ensure that the price of a product is reasonable relative to the overall benefits provided by the product, including the quality of any associated services.
Fair Value Assessment: Home Insurance Add-Ons Compared
| Add-on type | Typical insurer price | Standalone market range | FCA fair value risk |
|---|---|---|---|
| Home emergency cover | PS100-PS200/year | PS30-PS60/year | High -- significant margin vs standalone |
| Legal expenses cover | PS30-PS60/year | PS15-PS25/year | Medium |
| Accidental damage (contents) | PS50-PS100/year | Included in many standalone policies | High if charged as extra |
Note: prices illustrative. Verify current market rates on comparison sites before making a fair value challenge.
Check what you are paying per year
Note the annual premium for each element of your home insurance -- buildings, contents, and any add-ons (home emergency, legal expenses, accidental damage).
Get standalone quotes for the same cover
Search comparison sites for buildings-only and contents-only cover at equivalent levels. Compare add-on prices separately.
Calculate whether the bundled or add-on price is proportionate
If your insurer charges PS150/year for home emergency cover that costs PS40 standalone, the margin suggests poor fair value.
Write to the insurer citing Consumer Duty Outcome 2
Request confirmation of the fair value assessment for your policy and the specific add-ons. Reference PS22/9 and PRIN 2A.
Escalate to FOS if unresolved
The FOS considers Consumer Duty in its decisions. A well-documented fair value complaint with market comparison data is strong evidence.
Related KT guides
Frequently Asked Questions
What is fair value in insurance under FCA Consumer Duty?
Consumer Duty Outcome 2 (Price and Value) requires FCA-authorised insurers to ensure the price charged for insurance is proportionate to the benefit the customer receives. The FCA's fair value framework (introduced by PS22/9, July 2023) requires insurers to conduct a formal fair value assessment for each product and to act where the assessment shows customers are receiving poor value. As of June 2026, all home insurers covered in the KT brand reviews are subject to this requirement.
How does FCA fair value apply to home insurance add-ons?
Home emergency cover, legal expenses cover and accidental damage cover are all subject to Consumer Duty fair value assessment. Insurers cannot simply bundle these add-ons at high margins without demonstrating that the benefit to customers is proportionate to the cost. The FCA has identified add-on insurance as a specific fair value risk area following its 2019 general insurance pricing review, which found that many customers were paying significantly more for add-ons through their insurer than through the standalone market.
Can I challenge my home insurance premium on fair value grounds?
Yes. You can write to your insurer requesting confirmation that your policy has been subject to a fair value assessment under Consumer Duty. If the insurer cannot demonstrate fair value, or if the premium is materially higher than comparable market alternatives for the same cover, this may be grounds for a formal complaint citing Consumer Duty Outcome 2. Escalate to the FOS if unresolved within 8 weeks.
What is the FCA's definition of fair value in insurance?
The FCA defines fair value in insurance as a situation where the price is reasonable relative to the benefits the product provides. This involves comparing the total premium against the expected claim cost (loss ratio), distribution costs, insurer margin and any add-on margins. The FCA has published guidance indicating that loss ratios below 40% (meaning less than 40 pence in every pound of premium is paid out in claims) may indicate poor value, though this is not a hard rule.
Does fair value apply to bank-bundled home insurance?
Yes. Banks offering home insurance as part of a packaged account (Lloyds Premier, Santander 123 World, Halifax Ultimate Reward) must demonstrate under Consumer Duty that the bundled insurance represents fair value versus standalone market alternatives. The FCA has specifically flagged packaged account insurance as a fair value concern area. If the bundled cover costs more than equivalent standalone cover after accounting for the account fee, this may breach Consumer Duty Outcome 2.
Primary sources
Kael Tripton Ltd is registered with the Information Commissioner's Office under registration number ZC135439.
