The UK’s financial regulatory body estimates six million general insurance policyholders are paying £1.2bn too much
Car insurance ‘loyalty pricing’ could be banned after the Financial Conduct Authority (FCA) estimated that six million general insurance policyholders are overpaying for their premium by a total of £1.2 billion a year.
In October 2018, the FCA announced it would be launching an investigation into general insurance loyalty pricing – a practice where existing customers are charged higher prices than new customers for the same insurance product – as well as the way in which insurers charge different prices for the same product based on factors such as the customer’s postcode, marital or employment status.
• Car insurance prices rise for the first time in over a year
Now, the regulatory body has concluded that insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting price increases at those who are less likely to switch providers.
According to the FCA, one in three customers who pay high premiums show at least one characteristic of vulnerability, such as having lower financial capability. It accuses insurers of making assumptions as to whether a customer is more likely to switch provider or renew without haggling on an increased price, and engaging in a range of practices to prevent them from doing the former.
Remedies to the loyalty pricing problem
The FCA is now considering a number of “remedies” for this situation, one of which is to ban or restrict loyalty pricing, or to require insurers to automatically move their customers to cheaper equivalent deals.
The way in which auto-renewal systems are implemented by insurers may also be restricted to prevent consumers from being discouraged from switching. Additionally, the FCA is looking at whether firms should have to publish information about price differentials between their customers.
Christopher Woolard, executive director of strategy and competition at the FCA, commented: “This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around six million consumers.
“We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.”
Nigel Pocklington, chief commercial officer of MoneySuperMarket, said the news was “encouraging”. He added: “Insurance is a sector where loyalty or disengagement has never paid. Whether on car or home insurance, you can bring your premiums down substantially by shopping around and not accepting the price on your renewal notice. It takes a few minutes online and the benefits far outweigh the so-called hassle.”
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