Q&A: What does the UK decision on insurance costs mean for Irish customers?
What does a new ruling in the UK mean for Irish customers? File picture.
A British regulator, the Financial Conduct Authority (FCA), has ruled insurers can no longer penalise loyal car and home insurance customers.
Consumers who renew their policy rather than purchase a new product often face higher premiums as a penalty for their loyalty.
The perverse practise means customers who take out a new policy with an insurance company often pay less than existing customers.
Consumer groups have also criticised the practise in Ireland after a report from the Central Bank last year found similar pricing mechanisms targeting Irish customers.
Read on to see what this rule change means for the Irish market and find out how a disloyal customer benefits over a faithful consumer.
Differential pricing is a controversial premium pricing policy insurers use.
When an insurer calculates the premium for a customer they consider factors like risk and cost of service.
However, not all customers in Ireland with similar risks and cost of service are paying the same insurance premium. This is a result of loyal customers, consumers who do not switch insurance providers, paying a higher premium relative to others, as they are hit with a loyalty penalty.
New policyholders are targeted with cheaper prices and offered the best deals. This is to entice them away from other insurers. Research from the Central Bank shows that customers prefer to stay with their existing insurance providers. As a result, this reluctance to switch providers means insurers know they can risk charging a higher premium.
The FCA also found that insurers used sophisticated measures to target cheap policies at consumers who they thought would not switch policies in the future and end up paying more for their coverage as a result.
Well for one thing the ruling highlights the importance of shopping around, similar to the report published by the Central Bank of Ireland last year. It also demonstrates the importance of knowing how insurance works.
The Central Bank’s report found customers believed staying with their provider is easier than getting a new policy. Customers also preferred to compare prices with other insurers in order to secure a lower premium from their existing insurer rather than switch.
However, relative to what another customer with a similar risk or cost of service is charged, in the course of that person’s insurance policy they could still end up paying more than they needed to despite negotiating a lower premium.
It's the last thing people want to do on a free evening but look around on the price comparison sites. See what a broker can do for you. You’ll be surprised.
The ruling in the UK means loyal customers will no longer have to pay such a high price for their insurance premiums.
It should mean that insurance premium prices should no longer increase despite the risk factor of the consumer remaining the same or even decreasing.
The ban on loyalty penalties focused on home and car insurance after complaints from consumer groups but it also relates to mobile and broadband markets.
There may be a knock on effect in the policies market for new insurance policies as the low-priced deals to entice new customers could no longer be sustainable.
More than likely. Differential pricing is established here and has been criticised for a long time. A ban on the practise will require government legislation according to the Central Bank.
Research on the issue is ongoing in 2021 and Minister for Finance Paschal Donohue has said it is important for the studies to proceed before making any “knee-jerk” decisions based solely on last year’s report.
Opposition Finance Spokesperson Pearse Doherty has said the report from the Central Bank is a “damning indictment” of the insurance industry and that Sinn Féin has legislation ready to end differential pricing.
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