Home and car insurance pricing not working for all say FCA

4 October 2019, 15:50   By Dr Lucy Brown, Editor

Financial Conduct Authority (FCA) report finds around 6 million policyholders are paying higher premiums than necessary.

They estimate this is costing customers up to £1.2bn per year and affects all types of customers.

However, the FCA are especially worried about vulnerable customers, and they highlight that 1 in 3 potentially paying higher bills are in that category.

They have proposed a series of remedies to make the market work more effectively for consumers, including restricting the way insurance companies use auto-renewal.

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Credit: Piotr Swat/Shutterstock.com

FCA pinpoint market trends

The report published by the FCA is an interim report based on pricing practices within the general insurance industry and stems from multi-sector concerns about fair pricing.

Within the report, the FCA highlight several key findings:

  • Insurers target those customers who are less likely to switch when they increase premiums around renewal time
  • Although longstanding customers do pay more on average, some people who make the effort to switch still pay higher prices
  • Insurance firms deliberately raise barriers to switching
  • 1 in 3 customers who paid premiums that were higher than necessary showed at least one characteristic of vulnerability

Along with this, the FCA found that customers who switch or negotiate with their existing insurer can generally obtain a better deal

They pointed out, however, that the customers who paid high premiums were the ones least likely to understand the insurance market and the impact renewing has on their premiums.

The FCA's interim conclusion that the market isn't working for all comes weeks after Consumer Intelligence published their latest research showing that average home insurance prices are rising roughly in line with inflation.

Proposed remedies

As well as continuing with their existing efforts to ensure insurance companies deliver improved pricing practices, the FCA has also suggested some wider remedies for the home and motor insurance sector.

They are considering:

  • Banning or restricting practices like raising prices for those customers who renew every year or forcing companies to move customers to cheaper deals
  • Banning practices that may discourage switching behaviour including the way some firms use automatic renewal to lock customers in
  • Force insurers to be more transparent in their communications with customers

As these are only interim findings, nothing will happen immediately, and the FCA aims to publish a final report and open a public consultation in Q1 2020.

Even so, this is a reminder that the loyalty penalty is alive and well in the insurance industry, despite firms like Aviva pledging to stamp out such practices.

Loyalty penalty

Concerns about the impact of the so-called 'loyalty penalty' have been raised in numerous sectors, culminating in a 2018 probe from the Competition and Markets Authority (CMA) that found customers were being penalised for staying loyal.

They estimated customers were missing out on £0.7bn in the home insurance sector alone, although the report didn't cover motor insurance so we can't compare their findings directly with the FCA's.

It's certain, though, that loyalty penalties and fairness are at the forefront of regulators' minds at the moment.

Recent reforms in the broadband and mobile sectors have focused on tackling out of contract charges for customers who choose not to switch or renegotiate with their provider following the end of their fixed term contract.

In a similar way, the insurance industry is now coming under more pressure to amend their practices to ensure vulnerable customers aren't penalised for their lack of awareness of the marketplace and their tendency to remain loyal to insurers for sustained periods.

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