'A victory for consumers': Probe finds insurance sector ripped off loyal customers

The financial regulator said that its review of 11 insurance providers and 11 million policy records has shown "that some of the practices identified could result in unfair outcomes for some consumers in the private car and home insurance markets”.

The Central Bank is to propose the banning of higher pricing of insurance premiums for loyal customers from next year after a seismic review of how motor and home insurance premiums are priced.

The financial regulator said that its review of 11 insurance providers and 11 million policy records has shown "that some of the practices identified could result in unfair outcomes for some consumers in the private car and home insurance markets”.

It said that as a result of those practices the cost of premiums paid by some policyholders “deviate significantly” from what those premiums could be expected to cost the insurer.

Dual pricing is the practice of using harsher premiums from loyal customers who are less likely to shop around in order to offer cheaper deals to people who will look for the best deal possible. It is used in multiple industries, including for mobile phone packages and utility packages.

In its 60-page report, the Central Bank makes three proposals: the banning of ‘price walking’ - that is, the upwards creep of premiums for longstanding customers over time; a requirement for providers of motor and home insurance to review their pricing policies and processes annually; and the introduction of new consumer consent and disclosure requirements to “ensure the automatic renewal process is more transparent for all personal non-life insurance products”.

Those proposals are intended to be finalised early next year and will go live from July 1, 2022.

The Central Bank’s analysis showed that long-term customers, those who stayed with an insurer for nine years or more, pay on average 14% more on car insurance and 32% more on home insurance than an equivalent customer who is renewing their policy for the first time.

In banning price walking, the regulator said the approach “would allow insurance providers to continue to provide discounts for new business customers and ensure that personal consumers retain the opportunity to get a better-priced premium through switching insurance provider” by removing the “loyalty penalty” for people not used to switching provider.

The report adds that where new customers have been offered a lower price in order to attract their business they must be clearly informed of that fact.

The Central Bank said that it had also considered a “number of additional measures” with regard to complaints resolution, vulnerable customers, and transparency which will be published separately in the coming months.

“The series of proposed policy measures would, in our view, strengthen the consumer protection framework and ban practices that directly lead to some consumers paying more for private car and home insurance policies based on how long they are with their current insurance provider,” it said.

Sinn Féin spokesperson on Finance Pearse Doherty TD has described today’s report as a damning indictment of the insurance industry, and a "victory for consumers."

"Today’s report by the Central Bank on the use of dual pricing by the insurance industry is a shocking indictment of the industry and how it rips off consumers.

"Dual pricing has been used to target customers who are less likely to shop around and results in them being charged artificially high premiums at renewal. This is the loyalty penalty."

A public consultation on the report’s findings has now commenced and will run until October 22, the Central Bank said.

Central Bank recommends annual review of pricing policies

Maresa Fagan

The Central Bank has proposed ending the practice of ‘price walking’ by motor and home insurers, who have been penalising loyal long-term customers with 14-32% higher annual premiums than new customers.

The “loyalty penalty” was highlighted following an investigation into differential pricing practices by motor and home insurers, which the Central Bank found could result in “unfair outcomes” for consumers.

The analysis found that long-term customers, who stayed with their insurer for nine years or more, were paying, on average, 14% more for car insurance and 32% more on home insurance than a customer taking out a policy for the first time.

Banning the ‘price walking’ practice means that insurers will not be able to charge renewal customers a higher premium than that charged to a new customer with a similar risk and cost profile.

The Central Bank has also proposed that insurers must advise new customers of a ‘new business discount’ if offering a lower price to attract them.

It has also recommended that insurance companies carry out an annual review of their pricing policies, how they impact on customers, and to rectify any deficiencies identified.

Insurers will also have to improve transparency around the automatic renewal process by:

• seeking written consent from customers before entering this process 
• giving customers the right to cancel the automatic renewal 
• notifying customers in advance with changes in terms, fees and charges
• and highlighting the Competition and Consumer Protection Commission’s website and the option of switching or shopping around.