UK regulator considering banning dual pricing by insurance companies

[Brendan Burgess]

The UK regulator has published a report on the cost to loyal consumers of automatically renewing their policies while the insurance company charges a much lower price to new customers.

FCA sets out potential remedies to tackle concerns about general insurance pricing

The FCA has today published the interim report of its market study into the pricing of home and motor insurance. The FCA found that competition is not working well for all consumers in these markets. It sets out concerns about how pricing in these markets leads to consumers who do not switch or...

www.fca.org.uk

In particular, the FCA found that:

• Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch.
• Longstanding customers pay more on average, but even some people who switch pay higher prices.
• From the FCA’s consumer research, 1 in 3 consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability. For consumers who bought combined contents and building insurance, lower income consumers (below £30,000) pay higher margins than those with higher incomes.
• People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium.
• Most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price. This is not made clear to the customer.
• Firms engage in a range of practices to raise barriers to switching.
• Many consumers who switch or negotiate their premium can get a good deal.

The FCA is also considering remedies to:

• Tackle high premiums for consumers – this could include banning or restricting practices like raising prices for consumers who renew year on year or requiring firms to automatically move consumers to cheaper equivalent deals.
• Stop practices that could discourage switching – including restricting the way that firms use automatic renewal.
• Make firms be clear and transparent in their dealings with consumers - including improvements to the way firms communicate with their customers. The FCA is also considering whether firms should publish information about price differentials between their customers.
• Harness the benefits of innovation in the longer-term, so that general insurance markets benefit positively from technological developments including Open Finance.