The Central Bank said the majority of insurance companies in Ireland operate dual pricing despite claims by companies that they do not.
A review of Differential Pricing has been carried out by the Bank into the motor and home insurance markets over concerns that customers with the same risk and cost are charged different premiums
"While a number of firms maintain that they do not utilise differential pricing in their pricing practices, the Central Bank observed that the majority of firms do utilise differential pricing through various techniques," the review states.
The Central Bank said techniques such as price elasticity, retention/lapse modelling, conversion rate modelling and the use of models that facilitate the flexing of sales remuneration are used to provide different rates to customers.
The bank has now written to the CEOs of insurance companies saying they have a responsibility to understand fully the impacts of such pricing practices on their customers.
"The Central Bank expects that the best interests of customers are protected and that markets operate in a fair and transparent manner. As such, we require the Board and senior management teams within all firms to consider the observations set out above in the context of their own firms and their pricing practices and respond accordingly," the letter states.
Sinn Féin spokesperson on Finance Pearse Doherty said the review confirms that the insurance industry is using dual pricing to "rip-off" customers.
“What the Central Bank have uncovered during the initial phase of their investigation is absolutely damning and is of such concern that they have communicated to the CEOs of all insurance firms instructing them to implement immediate requirements on foot of their findings.
“The Central Bank have confirmed that the insurance industry uses pricing methods that punish loyal customers and harm vulnerable and low-income groups.
“There is only one way to regulate this practice and that is to ban it, as has been done in several states in the US. That is what I intend to pursue through legislation. It is time to end the insurance rip-off.”